Rates Hit 7%, Here's Why That's Good News For Buyers

Mortgage rates just hit 7.17%, the highest level in over a year. And while that sounds like bad news, for buyers willing to move right now, it may actually create a great opportunity.

So I know that sounds backwards, but let's talk about why higher rates can create leverage.

The truth is that higher rates push some buyers out of the market. There are some people that are just going to say, "7% is crazy, I'm not paying that, I'm waiting till they go back to 2% or 3%." Side note, I bought my first home in 1997. My rate was 8 1/8%, and it was a great rate. We were happy with it.

But right now, with fewer buyers, there's less competition, which means there's more leverage for whoever is still in the game. Here's one way to use that leverage.

Have you ever heard the phrase "marry the house, date the rate"? Here's what that means. The house is a long-term commitment. The rate isn't, and can be refinanced at any time that makes sense. Fort Mill's median home price is up 27.7% in the last five years, from $412,450 to $526,588. Historically, there has never been a rolling ten-year period where national home prices ended lower than where they started. So what's the point? Waiting for a better rate means competing against a market that does not wait for you. Prices are still going up while you're sitting on the sidelines. So that's the whole idea, you commit to the house now, and you treat the rate as temporary.

Have you heard of a 2-1 buydown? Here's what that means. Today we're at 7%. With a 2-1 buydown, in the first year you're taking 2% off of that, so you're paying 5%. In year two, it's discounted by 1%, so you're paying 6% on your mortgage. And then year three, it goes back to the current 7%.

So if we look at the math on that: a $500,000 home with 5% down, you're financing $475,000. At the 7% rate, you're looking at a payment of $3,159 a month. But if we can negotiate a seller-paid 2-1 buydown, year one is at 5%, about $2,550 a month, saving you $609 a month. Year two is at 6%, $2,848 a month, saving you $312 a month. So in the first two years, you're saving over $11,000, and here's how you can put that into action.

Over the years, as buyers, we've often been focused on just the price. But if we take that same $500,000 house and take $10,000 off the price, buying it at $490,000, that saves us $63 a month. Big deal. Now, if we do a 2-1 buydown and get the seller to pay for that, we're getting nearly 10 times the monthly relief in the first year.

We know that in year three, rates will be stepping back up to that 7%, and hopefully rates have come back down by then and we can refinance. And rates may even come down sooner, in which case, guess what? We refinance and lock in that new low rate.

So something like a 2-1 buydown is one way you can take advantage of a smaller buyer pool, less competition, more leverage on your side, and really save yourself some cash.

And there are other ways you as a buyer can take advantage of this leverage. Things like repair credits instead of having the seller fix everything themselves, so you can hire your own contractors and make sure things are done properly. Things like a home warranty, which costs around $500 to $700 and takes care of the major systems and appliances in the first year you own the home. Things like flexible closing terms so you can move in when it works best for your family. Price is just one of the levers you have. Right now, there's a whole lot more on the table with a smaller buyer pool and less competition, if you know how to use that leverage.

So if you've been waiting on the sidelines for those 2% and 3% rates to come back, I hate to tell you, but nobody is predicting we're going to see those rates again. There's no reason for you to wait, and no reason for you to lose all that potential equity, because the truth is, in the last couple years, homes have continued to rise, and as you've been waiting on the sidelines, you've missed opportunities to gain that equity.

If you'd like to have a real conversation about your situation and how we can help, we'd love to talk.

https://youtu.be/3TxsgzI8FKo

We live here, we work here, we play here, and we want to help you do the same. I'm Mike Morrell with Dream Team United, and we'll see you in Fort Mill!

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