Why Some Borrowers Won't Wait to Buy a Home in 2023
September 3, 2023
Interest rates on home loans are high in 2023. In the earliest days of September, home loan interest rates were listed between 6.6% and 7.6%. This is a marked increase from the heady days of 2020, when on 16 September 2020, home loan interest rates were listed below the 3% line.
In spite of this, some borrowers are choosing not to wait for rates to come down but are buying now regardless of rates in the 7% range.
These borrowers often come into the negotiating process with a strategy to refinance later once rates have lowered. But they refuse to wait to buy for a good reason.
Why Buy a Home When Interest Rates Are High?
When rates are higher, a certain portion of the buying public will choose to wait. This is understandable, as is the opposite circumstance. When rates fall, those who decided to wait may return to the housing market in a rush, making more competition for each house for sale.
Higher competition potentially leads to the kind of seller’s market we witnessed in 2020. More competition means the seller has no incentive to lower the price, pay seller concessions, or to allow contingencies or conditions on the sale of the home.
When Mortgage Loan Rates Begin to Fall
The borrower who purchased her home when rates were still higher in 2023 isn’t directly affected by an interest rate drop unless they have purchased with an adjustable rate mortgage, and the first rate adjustment period is coming soon.
However, they are affected by the dropping rates because those lower numbers make refinancing a more attractive option.
Imagine the competition from your fellow house hunters if you waded into the housing market as soon as rates fell to a more acceptable level. Could the competition override the savings? Higher home prices are likely if the market gets competitive enough.
If you already own your home when rates fall back to lower levels, it may be easier to refinance for some than it would be to purchase existing construction homes. The competition some will face when rates are better may negatively offset the savings of the lower rates, at least in part.
How to Buy and Refinance
The key to buying a home with an eye on refinancing is your credit. You’ll want to maintain your good credit scores and loan repayment history after the purchase loan closes in anticipation of applying for a refi loan.
Don’t apply for any other major line of credit ahead of your refinance loan, including an auto loan or a credit card. Keep your debt ratio low and work on maintaining or lowering balances on your monthly credit accounts.
The same basic criteria for qualifying for the original mortgage may apply for the refinance loan, depending on which option you choose. The key is to maintain your credit and don’t go into new non-mortgage debt before you refinance.
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RELATED VIDEOS:
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
In spite of this, some borrowers are choosing not to wait for rates to come down but are buying now regardless of rates in the 7% range.
These borrowers often come into the negotiating process with a strategy to refinance later once rates have lowered. But they refuse to wait to buy for a good reason.
Why Buy a Home When Interest Rates Are High?
When rates are higher, a certain portion of the buying public will choose to wait. This is understandable, as is the opposite circumstance. When rates fall, those who decided to wait may return to the housing market in a rush, making more competition for each house for sale.
Higher competition potentially leads to the kind of seller’s market we witnessed in 2020. More competition means the seller has no incentive to lower the price, pay seller concessions, or to allow contingencies or conditions on the sale of the home.
When Mortgage Loan Rates Begin to Fall
The borrower who purchased her home when rates were still higher in 2023 isn’t directly affected by an interest rate drop unless they have purchased with an adjustable rate mortgage, and the first rate adjustment period is coming soon.
However, they are affected by the dropping rates because those lower numbers make refinancing a more attractive option.
Imagine the competition from your fellow house hunters if you waded into the housing market as soon as rates fell to a more acceptable level. Could the competition override the savings? Higher home prices are likely if the market gets competitive enough.
If you already own your home when rates fall back to lower levels, it may be easier to refinance for some than it would be to purchase existing construction homes. The competition some will face when rates are better may negatively offset the savings of the lower rates, at least in part.
How to Buy and Refinance
The key to buying a home with an eye on refinancing is your credit. You’ll want to maintain your good credit scores and loan repayment history after the purchase loan closes in anticipation of applying for a refi loan.
Don’t apply for any other major line of credit ahead of your refinance loan, including an auto loan or a credit card. Keep your debt ratio low and work on maintaining or lowering balances on your monthly credit accounts.
The same basic criteria for qualifying for the original mortgage may apply for the refinance loan, depending on which option you choose. The key is to maintain your credit and don’t go into new non-mortgage debt before you refinance.
------------------------------
RELATED VIDEOS:
Disclosures Give Transparency to Borrowers
Understanding the Purpose of Your Mortgage Down Payment
Putting Money Into Your Escrow Account
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