When housing prices are high, inventory is low and interest rates are double what they were three years ago, it’s easy to understand why would-be buyers are hesitant to get a new mortgage.
The good news is that obtaining an affordable mortgage isn’t out of reach. Lenders have had several years to adjust to higher interest rates. What we’ve seen since is a collaborative effort among lenders, builders and local governments to introduce creative lending solutions.
For current homeowners considering a new home, the good news is that when prices remain up, there’s a potential for a good return on equity and therefore a sizable downpayment. However, the concern many potential sellers face is trading in an interest rate for one that could be twice as high.
This shouldn’t deter potential sellers. Yes, you may have locked in a historically low rate when you bought or refinanced between 2012 and 2021, but it’s important to remember that interest rates were this high not long ago and even higher. According to Freddie Mac, the annual average 30-year fixed rate in 2006 was 6.41%. In 2000, it was 8.05%.
Many first-time homebuyers are in a different situation. While they may lack the down payment that comes with substantial equity from selling a home, they don’t have a current mortgage rate to fear losing. Instead, their concern comes from knowing that as recent as 2021 rates were historically low, near 3%. Yet, they may not realize what rates used to be for so many decades. The average rate was 12.7% in the 1980s, 8% in the 1990s and 6.3% in the 2000s. (Knowing that doesn’t make it sting less, but it helps put things in perspective.)
Whether you’re considering selling and buying a new home or you’re a first-time homebuyer watching the market, waiting for rates to drop could ultimately work against you. When rates begin to drop, buyers who were also waiting will begin to buy, depleting inventory and ultimately driving prices even higher due to demand. You could miss out on the home of your dreams even though the mortgage could have worked for your budget.
If you’re ready to move, don’t think there’s not a solution to fit your needs. There are many incentives, grants and flexible lending options available for all types of mortgages. First-time homebuyers can take advantage of grants and incentives that help with initial costs such as down payments. Builders are also using incentives to entice buyers, including options like temporary buydowns, where they work with a lender to buy down a rate for the homebuyer for a certain period of time, such as three years. This temporarily gives the buyer a lower mortgage rate to help with affordability.
The biggest thing to remember is that rates are cyclical. When they drop, you may be able to refinance to a lower rate.
Whatever your current situation, there’s a strong possibility you can find a loan that meets your needs today and for your future. Contact an Arvest mortgage lender today to discuss your options. You might be surprised by what you find out.