Prices are decent right now, but yes, interest rates are ridiculous. That said, here are some options to consider if you want to purchase a home right now:
1. Get a variable rate mortgage that allows you to start with a lower rate and graduate over time. It’s risky because you may end up stuck with a crazy rate in a couple of years, and a much higher monthly payment. Ask your lender for details.
It’s possible circumstances may change, allowing you to mitigate the rate adjustment when the time comes. It’s also possible nothing good will happen, so be informed, and weigh your decision to take on this type of risk.
People will tell you to buy now and refinance in a year (marry the house, date the rate 🙄🙄🙄🙄), but if rates are still crazy high, that won’t help you, and you’ll probably not have enough equity for it to matter. Don’t believe the hype.
2. Buy a fixer and renovate it. I will ALWAYS recommend this as a viable option for any of my clients. Why? Because designing with equity in mind is what I do. We’ll choose the right property, get it for the right price, renovate it to your taste, and you’ll have instant equity because we will improve all the right areas, while reflecting your personal style. Winning.
Why do I keep mentioning equity? It’s so very important. Equity is the difference between the current value of your property and what you currently owe on it. For example, if you bought a fixer for $300K (appraised value), put $50K of renovations into it, and it then appraised for $400K, that’s $100K of equity you can borrow from, or leverage to acquire other assets.
Equity is usually accumulated over a significant amount of time, once you’ve made a substantial amount of payments that bring down the balance owed, assuming the property keeps or increases in value over that time (depends on the market). It is also closely related to the values of other/similar properties in the area, as appraisers consider those properties when assessing values.
Renovating sets your property apart from those others in the area, and can instantly increase its value with the right improvements. Why wait years when you can have it now? If you can do it, you should do it. It’s basically money you can tap into and can be leveraged to acquire further renovations, other property, or anything else you may need money for.
Mind you, you’ll have a new set of payments associated with that line of credit or other form of liquidation, so be careful. I recommend using it only for renovations or the acquisition of other income-building, tax-deductible assets. Money should be used to make more money. Invest in yourself, make it a habit, and you’ll most likely be financially prepared when life’s uncertainties and surprises arise.
Now, I hear you saying you don’t want the hassle of a renovation. You prefer a new build or the property that was just updated, but the fact is unless you’re customizing a new build and can afford all the options you want, in the exact location you want, you will never find a home that’s exactly what you want it to be for your life and style.
The updated property was done to appeal to a larger buyer pool, and bring in a higher sales price. Insider secret: They’re rarely updated with high-end fixtures, appliances and such. Budget items are used, but because they’re brand new and oftentimes white, buyers think they’ve gotten something special. If you’re going to pay more, shouldn’t you get something of quality, chosen and customized for YOU? Let’s find something in the location you like and make it just right for you.
New homes are nice, but they’re not perfect. They can have flaws you don’t see (get a home inspection) and they’re usually builder-grade basic, with similarities to every other property in that development and in other parts of the state where that builder has developments. And my personal favorite thing to hate on,… they’re full of carpet.
How can anything “luxury” come with common beige carpeting you’d find everywhere else? Ew. Good luck getting top price when you’re ready to sell it in a few years, unless you’re going to update it. Then you’ll be stuck replacing hundreds of sq ft of carpet, crappy light fixtures, vanities that didn’t stand the test of time, and eighteen to thirty-five cabinets that slam when you close them. 😆 Don’t believe the hype.
3. You could also consider buying a multifamily dwelling and renting one or more units to tenants rather than trying to find a roommate who could qualify to split the bills. The benefit of that is you can use the potential rental income to help you qualify for the loan, and it’s yours rather than shared. You have control over all decisions as the owner, and you don’t have to split the tax benefits. Yes, there are tax benefits that come with investment properties. You’ll have help with your mortgage payments, or live close to free. Down side, you’re a landlord, and incur the risk that comes with that. Think about it….
4. Hire the right agent and find a seller with a loan you can assume at their much lower interest rate. What does that mean? Basically, they bought the home in a prior year at like a 3% rate or something even better, and they can transfer that loan to someone else (you must be qualified). It’s tough, because they may have equity they won’t want to lose, but everything in life is pretty much negotiable, so that’s where the good agent part comes in. Life puts people in all kinds of situations that encourage them to be flexible. A good agent can identify opportunities for you to get in there, negotiate, and bring that deal home for you (see what I did there🤭).
5. Seller financing is a possible option. That’s when the seller allows you to purchase the property and you make payments to them, as agreed upon, rather than a traditional loan with a crazy interest rate.
Buying a home in the current market is doable, interest rates aside. Whenever you’re ready, talk to a few lenders, get qualified for one of the above options, do your research on a few agents, including me. Then hire one. Happy hunting!
From the Mind of Tonya D Floyd, Realtor
Licensed in DC & MD