With mortgage rates coming down, find out whether now is the right time to buy a home or not!
Buying a home is becoming increasingly difficult to achieve. High mortgage rates and a shortage of available homes have driven prices up, putting financial strain on potential buyers. While these high prices don’t seem to be dropping soon, there is some good news: borrowing costs have started to decrease. So, you might be asking yourself: is now the right time to buy a home? Find out what experts say!
The median home price increased to $422,600 in July, a 4.2% rise from the previous year, according to the National Association of Realtors. However, recently, mortgage rates have begun to decline, mainly due to the potential for an economic slowdown triggered by the Federal Reserve. The average rate for a 30-year fixed mortgage fell to 6.35% on August 29, down from the 6.46% on the previous week, marking the lowest rates in 15 months, according to Freddie Mac.
“Would-be homebuyers are likely going to get a much more attractive rate today than they would have just a few short months ago”, said Jacob Channel, senior economic analyst at LendingTree.
Despite of that, some buyers are hesitant due the extremely low rates from just a few years ago, when the Federal Reserve slashed interest rates to near zero, according to Dottie Herman, vice chair at Douglas Elliman. “I’ve been in the business 30 years and I’ve never seen 2.5% to 3% in my lifetime, other than during the pandemic – I never saw those rates unless it was a government loan”, Herman added. She also cautioned that focusing too much on past rates could cause buyers to miss current opportunities. “I bought a house when [the mortgage rate] was 15% and then I refinanced”, she noted.
Understanding Your Financing Options
If you’re considering buying a home now and refinancing later, it’s important to weigh the benefits and risks, and which mortgage type to take. Most buyers need a loan to purchase a home unless they can pay in full with cash.
“Anytime you get into any loan, you need to be aware of the positives and also the potential risks that you may assume with that”, said Melissa Cohn, regional vice president of William Raveis Mortgage in New York.
For instance, a zero-down mortgage allows you to finance the entire cost of the home without a down payment, which can be appealing. However, experts suggest being cautious with such offers. These loans often involve two separate loans: one covering about 97% of the home’s cost and another for the remaining 3%, Cohn explained. And, as Keith Gumbinger, a mortgage expert at HSH.com, explained, these loans might need to be repaid if you sell the home or refinance the mortgage later.
Another option, “buy now, refinance for free later” mortgages, might sound attractive, but they aren’t free of costs. “You end up paying a higher rate because you’re basically financing your own closing costs. No lender will give you a no-closing-cost loan at the lowest rate available”, said Cohn. So, basically, there’s no such thing as a completely free refinancing deal. Buying with the intention to refinance later always carries some risk, once it depends on future mortgage rates.
Is Now the Right Time to Buy?
“If you can afford a home, based on interest rates and the purchase price, buy now. It might not make sense to delay the purchase if you can afford it today”, advised Michael Krowe, director of financial planning at Edelman Financial Engines.
Although mortgage rates could continue to drop as the Federal Reserve lowers its benchmark rate, this might also increase demand for homes, potentially driving prices higher. Predicting the future of the housing market is challenging, as it depends on how much mortgage rates drop later this year and the supply of homes available, according to LendingTree’s Channel.
For those ready to buy, refinancing later might provide savings, but there are no guarantees. Holding off for lower rates could result in higher home prices. “There’s no perfect time to buy. If you want to buy a home, and you find something you like, get it”, concluded Herman.