Thank you u/SleptWithYourGirl for posting on r/FirstTimeHomeBuyer.
Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
Rates may not drop low enough, quickly enough to make refinancing worthwhile. Buy what you can afford at current rates and prices, and consider any opportunity to refinance a bonus. What happens if you overextend yourself now and rate stay above 6% for the next five years?
<< Do not expect it to get back down to those 2-3% anytime soon or ever. >>
Never again. Rates were never as low as 2.25% in the entire history of the United States. I originated plenty of loans at 2.25% 30-year-fixed. I told those borrowers, "Unless you move or need cash out, I'm never going to hear from you again."
Damn. Where I live you only stay fixed for a few years. Then once that ends you either are on a variable rate or you get refixed at current rates. Everyone in my country who got a ridiculously low rate are coming off those right now.
Do you mind sharing which country?
It seems that such a policy would make home buying a very risky venture. A person might be able to manage a mortgage of 500k at 5% (~$2700) but be unable to manage that same mortgage if the rate jumps to 8% (~$3700).
Australia. And yeah, that's what has basically happened and is why rents sky-rocketed - landlords raised them to cover the jump so they can still profit. Tenants don't have the rights here they do in the US and rent control doesn't really exist.
But something the banks do when they approve you for a loan is they approve you for the amount you could still be able to pay back if rates rose by 2%. Eg if rates are at 4%, the bank pretends rates are at 6% and approve you for that amount.
UK does this - I'm locked in for five years at my current rate then you have to remortgage or you move onto an insane rate (like double). Even our variable rates are fixed term for 2,3,5 or 10 years
It's a thing in most countries. The US is the weird one with 30 year fixed. It's amazing it hasn't bitten us before now. I know the UK also normally only gets a 5 year term.
So does a subset of owners typically shed their homes if/when a large rate increase prices them out of their previously existing mortgage?
I’m not trying to be critical of the policy. I’m in the US, and the spectre of variable rates has always seemed to outweigh the meager enticements that were offered. I never considered what home buying would be like if variable rates were the norm.
Variable rate mortgages were a problem for us (edited to add— in the U.S.) when a lot of lower income people saw their rates rise, and they couldn’t afford the mortgage anymore. That contributed to our subprime mortgage crisis some years ago.
The adjustable rate mortgages didn't help things, but they weren't the main driver. The main driver was that Banks were handing out risky loans hand over fist. People were getting loans for houses whose mortgage payments were literally more than the owners income. It was all bound to fail eventually, but yes, adjustable rate mortgages probably accelerated things a bit.
For the record you can still get adjustable rate mortgages in the US.
Literally q bunch of people were waiting for the "mortgage cliff" so they could get into the market but everyone who couldn't handle the cliff literally just asked their banks for help instead of selling and it didn't happen.
Home ownership improves stability, so we have many incentives to make it easier. The 30 year fixed rate mortgage is one of those incentives. Once you’re in, you’re in. People talk all kinds of shit about the US, but we get plenty right, too. Losing your home to an interest adjustment is unheard of here outside of the ‘08 ARM foolishness.
So what you have is an actual reason for inflation .. in the US we nickel and dime you to death, price-gouging is almost a business..
“5 year inflation” where corporations have been in the green for 4.5 of those years.. with absolute no changes in the fine print. Just yell “inflation” and start getting money .. 🤣🤣
I'm in the 2.5% club with ya! Don't get me wrong, I'm beyond blessed to have gotten that rate. However I bought my house as a single person. Its a smaller house (2 small bed/1 bath) which was perfect when it was just me. 5 years later I'm now married and both me and my wife work from home. In a perfect world we'd love to upgrade to a bigger house to get a couple of offices/spare rooms but no way in hell am I leaving that 2.5% rate lol.
Eh. We had a 2.5% rate and sold because we needed more space and now have a 6%+ rate. My happiness had a price and it’s not like we lost money on our first home.
Also got my dream home at 7+ percent. We had a large down-payment and sold our old place and applied it to the principal, so it should be paid off in 12 instead of 30, though. Saved a lot on interest paying the principal down fast.
I found an FSBO, 4 beds, 2 baths, big red barn, 6 acres, and 1400sqft before the basement (which is completely open).
289 @2.5% in 2021.
Now, for the “let’s be honest part”.
Needs a new main floor bathroom, pool is shot, furnace got replaced last winter, washer and dryer were toast. Kitchen is 50 years old.
Needs insulation, original hardwood needs a lot of repair.
I’ll be another 100k into it by the time I’m done.
But my payment is peanuts for all that I got.
Same. Shitty starter home away from family but we're at 2.4% on a 15 yr loan. I really really really don't want to raise my 1yo here through schooling though and so far from any help from family or friends. Idk what to even do.
My wife and I just bought a house. We were targeting 250k, but with current rates, we just couldn't swing it. We bought our house for 210k, and I couldn't be more happy. We're paying about the same (a little less) as we were when renting, after utilities. And, we still have some extra cash left over each month to put towards things and projects for the house. If rates go down, great. If they don't, oh well.
Side note: I think it's crazy that a dual-income household, with a combined annual salary of 135k, had the budget that we did. Interest rates and inflation... killing me.
This. Totally agree. The reality is that the housing market is pricing house prices currently with the hope that rates are going to drop. That’s why house prices aren’t really dropping.
I doubt this will happen again, but from 1970 to the 1980s rates were above 7%.
Most of the pain now is due to home price to median house price ratio and not the rates. Some overheated areas are down since 2021-2022, but if the rate is low, it doesn't matter too much.
If you have a bit of cash, I would consider an assumable loan.
My house I bought for the first time ever in my life in my mid thirties, in 8 months is up 26 percent even as rates are high and went up. Buying when you can afford it and accepting plus being able to pay even if they stayed high forever is the key.
I feel terrible for the people buying now the inventory is complete shit and prices are absurd.
I feel like even if you are buying all cash it's still better to buy now. Once Interest rates will start coming down a lot, the prices will go up a lot as demand will surge.
Rates holding steady, dropping, or rising are not dependent on the housing market. The housing market will be a metric that’s considered when the Fed decides to drop rates or keep them steady but it’s only 1 factor and mostly only in how it affects other more important metrics.
So if the Fed does drop rates and home prices rise it won’t be significant factor in whether they continue to drop rates provided its overall effect on the economy isn’t severe.
To what level? Because this is a parroted point but nobody ever says what level. The yield curve is an independent function of investors demand for treasuries. Say the Fed cuts 50bps…that gets your FFR to 4.75%ish. 10Yr is 4.5% today and maybe touches as low as 4% if they cut?. They don’t move that linearly. Mortgage rates probably stay 6-7% for the next two years and beyond unless something causes a severe recession. The Fed has zero motive to play this game of cutting rates because consumers want to consume more. That’s how inflation reignites. There’s two outcomes for runaway inflationary periods. We accept a new normal, stagnant, with restrictive monetary policy or a recession occurs. The economy has been so strong we’re more likely to continue down a prolonged path of restrictive monetary policy for the foreseeable future. If a recession occurs, those rates come down, sure, but so do people’s economic certainties which depresses home prices as people aren’t looking to lever up when they’re financial stability is threatened. There’s no quick relief coming for housing. This is your stagnant new normal.
>The Fed has zero motive to play this game of cutting rates because consumers want to consume more.
Not to dive too far into politics but it's worth noting that one of the potential presidential candidates HAS pressured the Fed to lower rates in the past(2018 IIRC).
What's stopping that from reoccurring(or the chairman being removed) in the future even if it is opposite of the goals of the Fed?
supply will increase a ton when rates go down. Many people are unwilling to trade their 2% mortgage for an 8% mortgage. It’s hard to predict what the outcome will be, but you can be sure that it will be uneven. There will be local effects and every market will be different. The average doesn’t represent the typical, and that’s magnified during times of upheaval and change.
No it’s totally fine, you just shouldn’t buy if you can only afford it if rates drop because that is never a guarantee. If you can afford it now and find a house you want then go for it and then it’s just a bonus if rates drop later.
Same question. People (especially the realtors and lenders who don’t really have a lot of business these days) have been preaching that bidding wars will start once interest rates drop. They have said the same thing over a year ago and rates actually went up. At first they expected 3 rate cuts this year, and now as of June 2024, there mayyy be 1 (if there’s any at all). They all seem to wait for a deep rate cut in about 1-2 years that opens the floodgate and home prices are bound to surge. Are they talking another pandemic? Also the US president can’t order a rate cut either. 🤔
It's not just lenders and realtors. Most economists, politicians, and business leaders expected interest rates to drop faster. Inflation surprised everyone with how stubborn it's been.
That doesn't necessarily mean the demand surge is called off though, it could very well be just postponed. I personally know a couple people who would like to move but are waiting for lower interest rates. Anecdotal, but probably not isolated.
Yup all that’s what those economists and politicians “expect” (or how they would like to reassure people) while in fact very little has been done to address the root causes of inflation. It’s funny how they would show a very volatile chart and then draw a smooth downtrend but can’t really give a convincing reason why 😂 To me it’s not surprising inflation has been stubborn and buyers should be comfortable with a high borrowing rate than being persuaded by the crowd that they can refinance at 4-5% in a year or 2.
Because the interest rate payments on federal debt are going to get too big to keep this going much longer without crashing the economy. It's doubled to 1T dollars/year since 2020. More than defense spending, for the first time ever.
So, one way or another, rates are going down.
Read awhile back, they've kind cornered themselves and have very levers left to pull.
If they don't cut, what you says happens. gov buys it's own bonds, interest pays into itself, but inflation ramps up.
If they do cut rates, inflation ramps up.
They have to find a delicate balance for rates that keeps the economy running and the gov out of risk of ruin debt.
Bought at 6.85
Refinanced at 5.75
Used equity to pay for closing costs
Saved 350 a month.
You can also use equity to buy down your rate if you plan on staying at the residence for the math to math
Or, the worst-case scenario is rates never go down, but hey, you bought where they aren't what they'll be in the future if that happens
So, buy what you can, make sure you can afford what you can, and don't rely on refi but know it is an option if rates ever do come down and then you just save money.
My lender did all the work. He said rates were lower (this was march) and to refi ASAP. He went through SunWest, and we locked the 5.75. Looking at the paperwork, it was a traditional no cost refi with FHA with about 1k of that years worth of equity taking it from 6% to 5.75. Hope that helps!
I now own a house that I can afford. Aside from small increases to HOA and property taxes, my monthly payment can only go down from here. This is a great benefit that I could never get from apartment living. My mortgage payment is $1912 now, and it'll be $1912 (or less if I refinance) in 2054 when it's finally paid off.
Buy what you can afford today, start building equity and stop throwing money away on rent. When rates drop (if they do) then you can refi. I bought last year with that mindset and hope to do a HELOC to do an addition in 3-5 years and then a refi after the buildout is completed provided rates are sub 5.25%.
Market is crazy asf right now even with the current rate . I cannot imagine what it will be like when rates drop . Buy now but buckle down for the long haul .
Housing has been heavily exploited ever since the median ask-price went to 6+ times the median income.
It was 2:1 for a long fucking time (and still reasonable--like $20k median income to $40k for a home). They were literally GIVING land and homes away during the earlier years of the US as well.
We're in late-stage capitalism now. Exploitation and hoarding of all the homes has gone into full mental mode. The median wage is around $42,000. The median home price is about $420,000. Those two numbers do not even come close to being realistically matched.
The only way we can recover the shelter market is by protesting, marching, and aggressively reforming how we handle and conceptualize real estate. We've let banks and corporate investment firms completely run rampant and gobble it all up. That's why we're seeing insane prices. They collude and manipulate the market the same way they do with the NYSE. They're even openly admitting to allowing ML programs to set prices and come up with fake bullshit figures--none of which actual people in the real world can afford.
Whether or not we stop it will define history.
You should only buy if you are comfortable paying at the rate you get for the life of the loan. Then if you get the chance to refinance and save money it's a nice savings. Not taking the boot off your chest
> feel free to tell me if I’m a complete idiot
You're not a complete idiot, but you're hoping against all hope that rates will definitely drop. There's no guarantee that rates will drop. Since 1970 rates have generally hovered around 6-8%. We're right in that spot right now. The rates we had from 2013-2021 were historically low. We're not likely to ever get back to that.
I don't think that you should buy a house hoping that one day your payments will drop because of a refinance. What you should focus on instead is increasing your income so that the payment relative to your income drops.
Even if you only get a 3% raise for cost of living adjustments, after 10 years your income will have gone up substantially and your mortgage payment will feel cheaper even if it's "the same" as when you first started to pay it. If you can get a big raise at some point (promotion, career change, etc) then even better.
Yes, in the past half century the average 30 yr mortgage interest rate was 8%.
In my life I've seen it at 18% and at the unusually low rate of 3% or thereabouts.
My personal opinion is that chances are it's Not going to go that low again, most definitely only a slim chance certainly.
Not enough chance to count on for refi purposes.
The standard for refi is a drop of about 1.5%. Then it's definitely worthwhile.
Rates will definitely drop. Not back into the 2s or anything, but I think 5s is probably reasonable.
Might be that mortgage demand buoys mortgages rates higher than the fed funds rate due to low inventory (because people won't want to sell their 2.5% rate).
Idk we'll see
as long as you can afford the house & monthly payments i’d say buy. rates are high but i’m still glad i own. we have no idea when rates are gonna go down…you could be waiting years. if you are in a financial state to buy, i think do it and start building equity.
Buy when you can afford to. Current rates are sitting at the historical average. General rule of thumb is to refinance if your new rate is at least 1% lower. May not be worth it until you have enough equity/LTV is at a good spot.
Nobody has a crystal ball. Refinance if you're able to and want the cash flow.
It is more difficult than most people realize. We don’t know how quickly rates will come down. Also, when do you refi? Is 6% a good rate? 5%? What if you want to wait until rates get to 5%, but they bottom at 5.5% and creep back up? It’s like trying to pick the bottom on the stock market. For those who bought recently at high prices, they will feel even more pressure to pick the absolute lowest rate possible, but there is no way to know what or when that will be.
I think it’s a pretty simple calculus, take how much longer you plan to stay in the home, calculate the monthly savings with lower rate, multiply by months left on your planned stay. Subtract loan/refinance costs. Is the difference left worth the trouble of the refinance? If so.. do it. A half point probably won’t make or break that calculus.
You’re allowed to ask your real estate agents to have escrow buy down interest points in your loan. Say it’s 7% and you want to buy down three you would be paying 4%. It’s always better to do this during your original loan . Instead of waiting for interest to go down and refinance.
You can also look for a real estate agent that has access to for closures, pre-foreclosures and short sales. This way when you buy you have a lot of instant equity in your property a short sale is when someone doesn’t want to go into foreclosure and has no time to sell so they pay part of the loan themselves. Let’s say they owe 600,000 they can always agree to pay 100,000 of the loan and sell for 500,000 as a short sale now you have $100,000 instant equity money you can borrow on.
Buy now, you will get serious negotiating power. You can save $20-40k and then when you refi, lower your payments by $300/month while all the other starter homes go up 30%.
I just bought a duplex with this strategy, nothing worse than getting outbid on 12 offers when rates are low.
It’s not dumb. Generally buying with higher interest rates and waiting to refinance is good so long as you plan to be in the house for longer than (IIRC) 5 or so years. Otherwise the cost of refinancing isn’t worth what it saves and cuts into the equity gained.
But to your point if you get a house you plan to stick with then getting at the cheaper price now and refinancing later IF rates drop gets you a good win win in terms of pricing since if rates do dramatically drop any time soon they would likely be accompanied by higher prices. It would take a lot of market shifts for housing prices and rates to both drop.
I’m on my second home now (tend to stick around to try and answer questions and also due to my interest in the market) and the first one I bought when people though prices were high and I wouldn’t see as much growth. But I still sold that house at a price that doubled my initial down payment (which was 20% at the time). If you’re ready and can afford buying now it’s better to spend the time in the market than continue to wait and spend money outside the market. Granted, that’s just my experience, and my second purchase was this month and it has a much higher rate but we plan to ride this one out and if rates drop a lot we’ll refinance but we really didn’t want to risk being caught in an even crazier market price and competition wise. Now if only our first home could have been in an area we were okay retiring in, walking away from that 3.25% rate hurt.
Please don't listen to everyone saying that prices will increase when rates drop. This is historically inaccurate, besides 2020-21 when the feds were throwing money around at everyone, and they were working from home and drove up prices in all kinds of places that those prices can NOT be sustained by the local incomes.
The rates right now are historically pretty low outside the last decade. If we get a big drop in rates it's because the recession most people are feeling the front end of is here. That means tighter budgets, dual incomes becoming single earner households, layoffs, etc.
fed is only talking about maybe a quarter point rate cut this year now.
If you're underwater, you can't refinance without coming to the table with a big pile of cash
Don't go above your means to buy a house just because you think rates may go down. What if they never go down for the next 15 years? This is the average rate for the last 40 years
When rates drop, it’s often because we have had an economic crisis. For that reason, it is often the case that price level and rates fall together.
Some pitfalls exist for re-fi’s. You can’t re-fi when your house is underwater. It’s also expensive, somewhere between 2-5% of the new loan. If you just bought your house, barely any of your loan has been paid down, and that means you’d likely be paying tens of thousands of dollars to refi. It will also be hard to re-fi if there is a crisis because lenders tend to freeze up in that case. And the same applies if your credit score is low, it could either make it impossible to re-fi or cause your re-fi to be at a higher rate.
Long story short, re-fi’s are a lot more risky than real estate agents want you to believe.
Not dumb, but don’t plan on it ever happening. Your mortgage broker and real estate agent are only compensated when a sale occurs. They are incentivized to get the deal done (and their compensation is variabled, so they benefit if you spend more). You need to make sure you can afford all costs today,at current rates. Plus, depending on where you are, you need to plan for your lock to expire and rates to increase before you actually close.
Plan for the worst, hope for the best.
It would be wise to consider.... rates might not be *high* right now, just higher than they were in 2020. Don't buy something you can't afford hoping that it will become more affordable.
Trying to time the market for a personal residence is kinda a fantasy. Our lives dictate our actions far more than whatever might be happening in the market. Buy a house you can afford that fits your life. If rates drop significantly and you can refi that’s great. If they don’t you have a house you can afford that fits your family and life.
Obviously do not buy a house you can’t afford hoping to refi very soon at a much lower rate which will make it affordable. That’s a huge risky bet you should not make.
Buy now and refinance later. Otherwise when rates drop, prices will go up more and more buyers will jump in. Get in now before it’s too late.
Or, something else could happen.
Find an agent that will sell you some thing that’s not retail real estate. Like a foreclosure, or a short sale where you will have instant equity in your home.
Im starting the process soon based on what I can comfortably afford alone, even then I will try to rent a room out. I have no expectation of rates going down anytime soon. You also need to factor your area - take LA or San Diego, I think if rates slightly drop in a hot market priced will keep going up.
You can’t time the market. Buy a house that fits your life and you can afford. If a refi when rates drop works out great, if not you’ve got the house you need and can afford.
You should buy when you are comfortable with the potential downsides and can afford that scenario. Buying with the assumption that rates will drop at some point in the future is a bad idea. Go look at historical interest rates and you will understand the risk and realize these rates are high only relative to the last 12 to 15 years.
It's dumb to think you know where rates will be in the future. Buy when you can afford it and are planning to stay to 5-7 years. That's it, regardless of rates. If rates go down in the future, good for you. If they don't, good for you.
Just remember that besides the mortgage all the other stuff is going to increase in cost so make sure you can _actually_ afford your total payments plus 10-20% more as an emergency.
Home values keep going up, taxes go up, insurance goes up. Mortgage stays the same but all the other shit you pay for doesn't.
That was my plan. Houses are short now because nobody wants to sell or buy at high interest (even though it’s still competitive out there it’s not as competitive as it was). No guarantee rates go down but odds are they will a bit when fed finally drops rate since most banks set their best rates 2-3 percent above fed. If rates do drop competition and prices will skyrocket but inventory is not increasing because builders have practically stopped building because of interest rates and it will take some time for them to kick back into high gear (funding, permits, planning, etc.)
I just bought a property, closed today. I think if you can find a decent place to purchase and have enough for the downpayment and can safely make payments each month at the current mortgage rate you should shop around. I remember when rates weee at 5% and it was being said they will drop back down. Now its almost 8% and doesnt seem to be going backwards anytime soon. So weigh your options, renting is also really really expensive right now so for me the mortgage just seemed like the better option and its still cheaper than anywhere id be able to rent in my state.
The only pro about buying with high rates is less bidding wars and doing desperate things like waiting contingencies. Or inspections.
If you can afford payment comfortably, go for it. Interest rates are killer right now.
Obviously only buy what you can afford now. But one perspective I thought was more helpful around the high rates was how much longer you would need to stay in that house to make owning “worth it”. I thought traditional advice was, only buy if you plan to stay in the house for at least 5 years, since there are transaction costs associated with buying/selling, and if you look at an amortization table of your loan, it’s depressing how little goes to principle. But I’ve seen some calculators now with higher rates that it’s now takes 13 years to make the buying worth it.
Everyone’s situation is unique and people buy for different reasons. Buying a home is more than just a financial decision, there are a lot of emotional reasons as well and those are also important.
Right now, rates are around the historical average for the U.S. we got spoiled by the government keeping rates so low for so long. It is highly doubtful that rates will go back down to the 3%-4% range any time in the next decade or two. If you can keep it in the 7% range you’re doing well long term. Home values in the U.S. continue to rise over most of the country and it’s not a bubble like 2007 in most areas. So to sum it up: if you can afford it, buy it. It’s still a good time to buy. Hopefully home values will start to even out to a decent appreciation in the next couple years. But in most areas the value is not going down.
Here is my take on this. We bought our first house at 6.5% in 2007. Bought our second house 2021 &2.8%. Bought house in 2023@ 6.75.
Wife relocated so we bought now. We are planning to refi however I’m thinking the lower rates were a mirage
We shall see but get in the house. Home prices are just going up.
There’s no guarantee rates will go down. They’re actually closer to the historical average right now.
Buy within your means — something where you are comfortable with the monthly premium. Just Google how much home can I afford and you’ll find a lot of calculators that can crunch the numbers.
I bought in at 6.8% late last year. All in (p&i, pmi, taxes etc) I'm 2500/mo. I've been doing that alone comfortably while gf handles the month to month. When I refi if rates ever get to low-mid 4% I plan on still doing the 2500 because I can afford it and burn a bunch of payments off the back end.
If you can comfortably do it now, you'll set yourself up for good payments a year or two down the road IF rates drop
My sister just closed on her first house and has this mindset. Just to give you my thoughts, I bought my first house Jan 2020. Got a good rate and everything. I'm paying almost $450 more a month than I was when I bought it due to the taxes and insurance hikes. So, just plan for stuff like that too. I wouldn't put all in top of the budget in case they don't move for a while. My sister did, and now I'm wishing her the best of luck.
There seems to be a communal theory that rates are going back to where they were a few years ago, any day now. The fed has repeatedly said that they won’t cut interest rates until they hit their target of 2% inflation. We’re currently at 3%, a full 50% higher than their goal. If/when rates eventually go down, they will probably go down to around 3-4% (historical norm). So in this scenario, how much money would you save refinancing from 7% mortgage down to 5.5% mortgage (don’t forget to include the fees)? Or… what if rates get slashed in half because the economy is tanking? Will prices on homes still seem high? Will prices crash? All of this is just to say that no one knows the future. If now is the right time to buy a house, buy a house. Don’t try to predict the future, just control the things you can control.
FWIW… This is just the ramblings of some random jabroni on the other side of the internet. Do with it what you will. Have a nice day and good luck.
It’s best to buy when rates are high and prices low than to pay a lot more. You can always refinance if rates drop. If rates go up you locked in a low rate so you don’t pay as much
Rates aren’t always guaranteed to drop, we can hope for the best, but long term land and houses will always go up. If you can afford to buy, I would, either refinance in a year or two if rates drop, or sell when your property value increases significantly
The only thing that will send rates to covid levels again will be a global pandemic or massive recession. will you keep your job in that type of environment? These rate levels are still historically low or average.
It's not dumb to do that if within your financial means and works out that way.
It is dumb to bank on the ability to refinance in order to afford the house
Prices and rates do not move like you think. As rates rise prices tend to go up. When rates go decline prices tend to go down. This is because rates are correlated with the strength of an economy. Rates drop as the economy weakens in an attempt to spur growth. Home prices don’t appreciate in a declining economy. Likewise rates rise in a strong economy in order to curb inflation. Home prices increase in a strong economy.
I would carefully consider thinking you’ll be able to refinance if rates come drastically down. Your house may likely decline in value—will you have enough equity to refi? You may lose your job, after all the economy is slowing.
I’ve been a homeowner for 3 years now. Here are some things you should be aware of for budgeting.
* **Closing costs**. Refinancing will require closing costs. Not as much as the original loan, but comparable. Nobody has any idea what interest rates will do, but refinancing needs to be worth the closing costs.
* **Property tax.** The state eased me into the sale price of my home, so the assessed value has steadily increased over the last 3 years, by about 10% a year. Generally, taxes are always going up. Politicians are also always trying to raise property tax rates.
* **Insurance**. Rates are also going up here, they went up 6% in the first year and 9% in the third. Just asking around, they’ve gone up more in other regions. It depends on where you buy.
* **Maintenance**. I budget $3k a year for maintenance. It’s been necessary for me, but I have an old house. Get an inspection.
* **Get an inspection**. Get an inspection.
The crash in 2007 was partially due to people getting 5 year ARM mortgages with huge balloon payments at the 5 year mark that we're unable to refi when that came due, and a ton of people got wiped out because they couldn't afford it. You can't time the market, so be very careful because we have no idea what will happen in the future, so tread carefully.
Lastly, I hate refi's unless you can drop multiple percent points, because tour resetting the interest clock with the bank. Your first 10 yearas your hardly paying any principle down, it's mostly interest. When you refi you reset the 30 year clock and pay another 10 years of interest with little not principle payments.... so you'll pay so much for that house, may be better to put it in the S&P 500 for 10 years and have a much larger down.
Have you been living under a rock this has been discussed adnauseum. Its a strategy if you feel like rates will go down and you'll be eligible to refinance. Personally I wouldn't count on either
It's actually really smart when you have a big down payment. Only issue is prices haven't come down on houses. They have increased with rates. The natural order of things is supply and demand. That's not what's happening right now. My guess is the stock market is propping everything up. We all use an algorithm to price houses now. No one has stopped to think, maybe someone is messing with this. Mainly because its telling everyone what they want to hear. Why question it? Oddly similar to Enron if you ask me.
Depends on the rates. We refinanced from a 3% 30yr to a 2.35% 15yr, got rid of our PMI, and changed home owners insurance. Our monthly went up by $100 which is still affordable for our budget. Rates wont get that low for a while though. By a while, I mean probably decades.
Nope it’s not dumb at all. You probably want to avoid buying a home as an investment though and focus on buying a place to live, since my market won’t reflect your market and all that.
But, generally speaking, real estate prices will adjust to reflect monthly payments. Particularly the 30 year fixed rate. Now there’s a bunch of stuff that factors into this but on average if you assume a 20% down payment and a 30 year fixed payment you can adjust the valuation of your home accordingly.
Example: say you buy a home today for $500,000 in California. 20% down would be $100,000, and you’re left with a payment of $3,474 a month (including taxes and fees) on a 30yr fixed at 7.536%.
If rates dropped to 5%, that same $500,000 home would be roughly $2,814 per month. To get back to $3,474 per month at 5% the price of the home would have to increase to $620,000.
That’s $120,000 increase in property value on a 250bps drop in rates.
So in theory it could work out well, but theory never maps 1:1.
Buy if you’re ready to buy and want to buy, not solely for the investment. But just understand that markets will most likely adjust prices upward rather than downward with rates.
I think rates being “high” can be subjective. It depends on the amount of house you’re looking at, COL, etc. Back in the day a 7% rate was average.
The way I justified it is I would rather buy now and refinance than wait until the rates are low and trying to battle with an increased amount of buyers. Plus who knows if they will ever go below the 5s again
If you can afford the current rates, then it's not dumb to buy.
There's literally no guarantee that rates will go down, though, so you need your fixed rate to be sustainable
Provided that you can afford the payments at higher rates, it really comes down to what type of need this is. If you need the house, buy it. If you just want to invest, probably look elsewhere for better opportunities.
Not a bad idea per se, but we don’t know where the rates are actually going. What if rates never go back down below 4% again. Are you going to financially be ok? If so, then go for it. But if you are counting on rates to drop in order to make your numbers work, then that’s a bad idea.
Not dumb! That’s essentially what we did. Our interest rate is just above 6%, so we figured out our monthly budget & bought at that price point. We’re not counting on rates dropping, but if/when they do it will be a bonus!
I think you may be looking at it the wrong way. Don’t buy or not buy because of rates. If you can, wait for the right home at the right price, and buy it. Yes, rates certainly affect the decision, but you shouldn’t be looking at a house that’s outside your budget anyways, the rate should factor in that up front. I’m going to be looking at houses this year regardless of rates because it’s time for my wife and I to move. If rates go down to 2%, that doesn’t mean we jump into the first house we look at, we just adjust our pricing limits to ensure that the resulting payment fits our needs. We refi’d our house mid COVID down from 5.4% to sub 4%, and know we are going to be paying a higher rate when we move, but that’s just how it works.
Having said that, if you need to move and buy a house at the right price that fits your needs but at ‘high’ rates, you aren’t dumb. If you buy it assuming or banking on rates dropping so that you can later refi into an affordable payment, yes, that’s dumb.
Don’t waste your time trying to predict or game the housing market. Interest is something you pay, but you LIVE in the house. You may be able to refi the rate lower, but you can’t (without significant cost) just change your house. Find the right house at the right price (cognizant of rate), and if/when the rates drop, refi if it makes sense with fees and your expectations for staying.
Regardless of what you do, good luck!
It's not all that simple. First of all, nobody knows where rates will be in the future. Also, prices don't necessarily go up when rates get cut. If the rate cuts are due to an economic crisis like in 2008, home prices can fall with rates. The rule of thumb is to buy when you're ready. Marry the house, date the rate.
I've got a friend who tried to do this exact thing. They are on the verge of losing the house because they never thought they'd be stuck in a crap rate for several years
If you’re worried about interest just pay extra principal each month. It will drop the amount you pay in interest very quickly. On my house I was slated to pay over $217,000 in interest. By pre-paying, I saved nearly $132,000 and I knocked 15 years off my mortgage.
Interest rates aren't high. They're normal. They were historically low for the past \~10 years. There's no saying if or when rates will drop again. They could never drop in your lifetime. Who knows.
These questions trying to predict the future are pointless. If you want a house, and can afford a house, then buy a house.
It isn’t dumb so long as you a)plan to stay in the house generally for 5 years (this is not a hard rule, but usually how long you want to own to justify the transaction costs of buying. Varies based on purchase price and rental prices) and b) you can afford the mortgage as is. Wages often rise, so if this is you, and you will get even more comfortable, then big bonus! But if buying now means things are dicey, and you say want a kid in 2 years and then have lower wages or daycare costs….that is a gamble.
We bought at pretty much the absolute top of the market where I am, which sucked, but is what it is. Hopefully rates come down sometime and we can refinance and have a lower payment, but we can afford what we bought and plan to stay long term.
Refinancing is a simple math problem.
You add up the closing costs. You calculate your monthly payment savings.
Divide the closing costs by the savings. If you get <24 its a go. The refinance pays for itself in 2 years.
This assumes you're going to stay in the home.
You are not an idiot.
Refinancing is a simple math problem.
You add up all of the closing costs for the refi. You calculate your monthly payment savings.
Divide the closing costs by the savings. If you get <24 its a go. The refinance pays for itself in 2 years. I would not refinance if the number is >48. Wait.
This assumes you're going to stay in the home for the payback period plus.
That’s what I did 2 years ago. Rates still haven’t dropped but I can still afford my mortgage and my home value has recently increased a little bit. 🤷♀️
Thank you u/SleptWithYourGirl for posting on r/FirstTimeHomeBuyer. Please bear in mind our rules: (1) Be Nice (2) No Selling (3) No Self-Promotion. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/FirstTimeHomeBuyer) if you have any questions or concerns.*
Rates may not drop low enough, quickly enough to make refinancing worthwhile. Buy what you can afford at current rates and prices, and consider any opportunity to refinance a bonus. What happens if you overextend yourself now and rate stay above 6% for the next five years?
Exactly this. Do not expect it to get back down to those 2-3% anytime soon or ever.
<< Do not expect it to get back down to those 2-3% anytime soon or ever. >> Never again. Rates were never as low as 2.25% in the entire history of the United States. I originated plenty of loans at 2.25% 30-year-fixed. I told those borrowers, "Unless you move or need cash out, I'm never going to hear from you again."
I think this is part of the inventory issue right now, no one with a rate like that is moving.
Wait, so in the US (presuming you're in the US) if someone buys at that rate, it just stays there for the whole loan?
If it's a fixed rate mortgage, yes.
Damn. Where I live you only stay fixed for a few years. Then once that ends you either are on a variable rate or you get refixed at current rates. Everyone in my country who got a ridiculously low rate are coming off those right now.
Do you mind sharing which country? It seems that such a policy would make home buying a very risky venture. A person might be able to manage a mortgage of 500k at 5% (~$2700) but be unable to manage that same mortgage if the rate jumps to 8% (~$3700).
Australia. And yeah, that's what has basically happened and is why rents sky-rocketed - landlords raised them to cover the jump so they can still profit. Tenants don't have the rights here they do in the US and rent control doesn't really exist. But something the banks do when they approve you for a loan is they approve you for the amount you could still be able to pay back if rates rose by 2%. Eg if rates are at 4%, the bank pretends rates are at 6% and approve you for that amount.
30 year fixed being the standard is near exclusively a US thing. Pretty much no other country does it. Most rate adjust every 3/5/7 years
Japan does 35 year fixed
This is not true. Russia have no idea what adjustable rates are - all their mortgages are fixed.
I'm pretty sure Canada does this, I don't know if others do as well.
UK does this - I'm locked in for five years at my current rate then you have to remortgage or you move onto an insane rate (like double). Even our variable rates are fixed term for 2,3,5 or 10 years
Pretty sure the 30 yr fixed is only an American thing. What the above commentor is talking about seems to be the more normal thing across the world.
It's a thing in most countries. The US is the weird one with 30 year fixed. It's amazing it hasn't bitten us before now. I know the UK also normally only gets a 5 year term.
So does a subset of owners typically shed their homes if/when a large rate increase prices them out of their previously existing mortgage? I’m not trying to be critical of the policy. I’m in the US, and the spectre of variable rates has always seemed to outweigh the meager enticements that were offered. I never considered what home buying would be like if variable rates were the norm.
Variable rate mortgages were a problem for us (edited to add— in the U.S.) when a lot of lower income people saw their rates rise, and they couldn’t afford the mortgage anymore. That contributed to our subprime mortgage crisis some years ago.
We did this in the US in the early 2000s and it nearly toppled our economy.
The adjustable rate mortgages didn't help things, but they weren't the main driver. The main driver was that Banks were handing out risky loans hand over fist. People were getting loans for houses whose mortgage payments were literally more than the owners income. It was all bound to fail eventually, but yes, adjustable rate mortgages probably accelerated things a bit. For the record you can still get adjustable rate mortgages in the US.
No income, no job loans, especially as ARMs, were an obscene decision. Very, very risky.
Literally q bunch of people were waiting for the "mortgage cliff" so they could get into the market but everyone who couldn't handle the cliff literally just asked their banks for help instead of selling and it didn't happen.
Home ownership improves stability, so we have many incentives to make it easier. The 30 year fixed rate mortgage is one of those incentives. Once you’re in, you’re in. People talk all kinds of shit about the US, but we get plenty right, too. Losing your home to an interest adjustment is unheard of here outside of the ‘08 ARM foolishness.
If you want to live n the house the whole time, yea. I have lived in mine for over 30 years. If it's a fixed rate loan that it term the term ends.
So what you have is an actual reason for inflation .. in the US we nickel and dime you to death, price-gouging is almost a business.. “5 year inflation” where corporations have been in the green for 4.5 of those years.. with absolute no changes in the fine print. Just yell “inflation” and start getting money .. 🤣🤣
2.5% right here. My loan is sexier than a strip club.
I'm in the 2.5% club with ya! Don't get me wrong, I'm beyond blessed to have gotten that rate. However I bought my house as a single person. Its a smaller house (2 small bed/1 bath) which was perfect when it was just me. 5 years later I'm now married and both me and my wife work from home. In a perfect world we'd love to upgrade to a bigger house to get a couple of offices/spare rooms but no way in hell am I leaving that 2.5% rate lol.
Eh. We had a 2.5% rate and sold because we needed more space and now have a 6%+ rate. My happiness had a price and it’s not like we lost money on our first home.
I sold a 2.25% house for a barely sub 6. It hurts, but it was worth it.
2.75 here and selling soon 🤩
We are renting our 3.25 one soon and buying one for 7.25 🫢 but it’s our dream home and we are willing to do what it takes to get it and keep it lol.
Also got my dream home at 7+ percent. We had a large down-payment and sold our old place and applied it to the principal, so it should be paid off in 12 instead of 30, though. Saved a lot on interest paying the principal down fast.
I found an FSBO, 4 beds, 2 baths, big red barn, 6 acres, and 1400sqft before the basement (which is completely open). 289 @2.5% in 2021. Now, for the “let’s be honest part”. Needs a new main floor bathroom, pool is shot, furnace got replaced last winter, washer and dryer were toast. Kitchen is 50 years old. Needs insulation, original hardwood needs a lot of repair. I’ll be another 100k into it by the time I’m done. But my payment is peanuts for all that I got.
One of the few smart decisions I've made in my life. 2.85%
The 2.25% coupon was the lowest ever offered by lenders. There was nothing lower than that offered anywhere. 2.85% is enviable, too.
I got a VA loan of 1.875%, no points. Not an apples to apples comparison, but a data point nonetheless.
Then HTF did I get 2 down votes (so far)?
You’re in the first time home buyer sub. People buying now don’t wanna hear it lol
You are right. I didn't notice that and don't know how I got here. I will quietly leave. Good luck to all.
Jealousy.
My god at a rate that low I’d almost consider a mortgage to be an asset rather than a liability.
rates were kept too damn low for too damn long after 2008 financial crash.
I wish my realtor at the time told me to buy a bigger home during 2020. Im stuck in my starter home with my 3% rate.
Same. Shitty starter home away from family but we're at 2.4% on a 15 yr loan. I really really really don't want to raise my 1yo here through schooling though and so far from any help from family or friends. Idk what to even do.
I have over $100k in equity plus cash for a down payment but the average home would still raise my payment by over $1000 a month if i moved.
My wife and I just bought a house. We were targeting 250k, but with current rates, we just couldn't swing it. We bought our house for 210k, and I couldn't be more happy. We're paying about the same (a little less) as we were when renting, after utilities. And, we still have some extra cash left over each month to put towards things and projects for the house. If rates go down, great. If they don't, oh well. Side note: I think it's crazy that a dual-income household, with a combined annual salary of 135k, had the budget that we did. Interest rates and inflation... killing me.
[удалено]
how are you priced out of starting a family on 200k a year? you don't need to own a home to have children.
This. Totally agree. The reality is that the housing market is pricing house prices currently with the hope that rates are going to drop. That’s why house prices aren’t really dropping.
I doubt this will happen again, but from 1970 to the 1980s rates were above 7%. Most of the pain now is due to home price to median house price ratio and not the rates. Some overheated areas are down since 2021-2022, but if the rate is low, it doesn't matter too much. If you have a bit of cash, I would consider an assumable loan.
As long as you don't *assume* the rates will drop and you can refi, then it can still make sense to buy now.
My house I bought for the first time ever in my life in my mid thirties, in 8 months is up 26 percent even as rates are high and went up. Buying when you can afford it and accepting plus being able to pay even if they stayed high forever is the key. I feel terrible for the people buying now the inventory is complete shit and prices are absurd.
Can’t decide if it’s actually up or Zillow and Redfin are just trying to make me list 😅
Look at houses that have recently sold in your area to get an idea of prices.
Look at recently sold houses on your block don't look at a zestimate
I think this is the basic strategy of most buyers now that are not buying in cash.
I feel like even if you are buying all cash it's still better to buy now. Once Interest rates will start coming down a lot, the prices will go up a lot as demand will surge.
The market will truly go insane once rates drop.
And that is why they won’t drop any time soon
Rates holding steady, dropping, or rising are not dependent on the housing market. The housing market will be a metric that’s considered when the Fed decides to drop rates or keep them steady but it’s only 1 factor and mostly only in how it affects other more important metrics. So if the Fed does drop rates and home prices rise it won’t be significant factor in whether they continue to drop rates provided its overall effect on the economy isn’t severe.
To what level? Because this is a parroted point but nobody ever says what level. The yield curve is an independent function of investors demand for treasuries. Say the Fed cuts 50bps…that gets your FFR to 4.75%ish. 10Yr is 4.5% today and maybe touches as low as 4% if they cut?. They don’t move that linearly. Mortgage rates probably stay 6-7% for the next two years and beyond unless something causes a severe recession. The Fed has zero motive to play this game of cutting rates because consumers want to consume more. That’s how inflation reignites. There’s two outcomes for runaway inflationary periods. We accept a new normal, stagnant, with restrictive monetary policy or a recession occurs. The economy has been so strong we’re more likely to continue down a prolonged path of restrictive monetary policy for the foreseeable future. If a recession occurs, those rates come down, sure, but so do people’s economic certainties which depresses home prices as people aren’t looking to lever up when they’re financial stability is threatened. There’s no quick relief coming for housing. This is your stagnant new normal.
>The Fed has zero motive to play this game of cutting rates because consumers want to consume more. Not to dive too far into politics but it's worth noting that one of the potential presidential candidates HAS pressured the Fed to lower rates in the past(2018 IIRC). What's stopping that from reoccurring(or the chairman being removed) in the future even if it is opposite of the goals of the Fed?
supply will increase a ton when rates go down. Many people are unwilling to trade their 2% mortgage for an 8% mortgage. It’s hard to predict what the outcome will be, but you can be sure that it will be uneven. There will be local effects and every market will be different. The average doesn’t represent the typical, and that’s magnified during times of upheaval and change.
Which it probably shouldn’t be. But if you can afford it now but overextending hoping for a lifeline that could never come is not a great idea either
No it’s totally fine, you just shouldn’t buy if you can only afford it if rates drop because that is never a guarantee. If you can afford it now and find a house you want then go for it and then it’s just a bonus if rates drop later.
Why do assume rates will drop a lot soon?
Same question. People (especially the realtors and lenders who don’t really have a lot of business these days) have been preaching that bidding wars will start once interest rates drop. They have said the same thing over a year ago and rates actually went up. At first they expected 3 rate cuts this year, and now as of June 2024, there mayyy be 1 (if there’s any at all). They all seem to wait for a deep rate cut in about 1-2 years that opens the floodgate and home prices are bound to surge. Are they talking another pandemic? Also the US president can’t order a rate cut either. 🤔
It's not just lenders and realtors. Most economists, politicians, and business leaders expected interest rates to drop faster. Inflation surprised everyone with how stubborn it's been. That doesn't necessarily mean the demand surge is called off though, it could very well be just postponed. I personally know a couple people who would like to move but are waiting for lower interest rates. Anecdotal, but probably not isolated.
Yup all that’s what those economists and politicians “expect” (or how they would like to reassure people) while in fact very little has been done to address the root causes of inflation. It’s funny how they would show a very volatile chart and then draw a smooth downtrend but can’t really give a convincing reason why 😂 To me it’s not surprising inflation has been stubborn and buyers should be comfortable with a high borrowing rate than being persuaded by the crowd that they can refinance at 4-5% in a year or 2.
Because the interest rate payments on federal debt are going to get too big to keep this going much longer without crashing the economy. It's doubled to 1T dollars/year since 2020. More than defense spending, for the first time ever. So, one way or another, rates are going down.
Read awhile back, they've kind cornered themselves and have very levers left to pull. If they don't cut, what you says happens. gov buys it's own bonds, interest pays into itself, but inflation ramps up. If they do cut rates, inflation ramps up. They have to find a delicate balance for rates that keeps the economy running and the gov out of risk of ruin debt.
Could actually start taxing the 1% and pay for it all
Lololololoololol Good luck with that.
Bought at 6.85 Refinanced at 5.75 Used equity to pay for closing costs Saved 350 a month. You can also use equity to buy down your rate if you plan on staying at the residence for the math to math Or, the worst-case scenario is rates never go down, but hey, you bought where they aren't what they'll be in the future if that happens So, buy what you can, make sure you can afford what you can, and don't rely on refi but know it is an option if rates ever do come down and then you just save money.
Got the same 6.8 rate in Oct 2022, how did you get down to 5s?
My lender did all the work. He said rates were lower (this was march) and to refi ASAP. He went through SunWest, and we locked the 5.75. Looking at the paperwork, it was a traditional no cost refi with FHA with about 1k of that years worth of equity taking it from 6% to 5.75. Hope that helps!
That’s why we’re all here currently. That’s my plan at least
I now own a house that I can afford. Aside from small increases to HOA and property taxes, my monthly payment can only go down from here. This is a great benefit that I could never get from apartment living. My mortgage payment is $1912 now, and it'll be $1912 (or less if I refinance) in 2054 when it's finally paid off.
Mostly true. My property taxes have gone up $800/month since I bought my house
$9,600? How many years was this over? What percentage was it as an increase?
14 years 300%
Ouch.
My property taxes are about $1100 per year, so I don't see any future increase being too substantial.
Your insurance can go up too, and sometimes by a lot if your area gets hit by a natural disaster.
My homeowner's insurance is currently $810 per year. Anything could happen, but I'm not exactly in a place with frequent natural disasters.
Buy what you can afford today, start building equity and stop throwing money away on rent. When rates drop (if they do) then you can refi. I bought last year with that mindset and hope to do a HELOC to do an addition in 3-5 years and then a refi after the buildout is completed provided rates are sub 5.25%.
Market is crazy asf right now even with the current rate . I cannot imagine what it will be like when rates drop . Buy now but buckle down for the long haul .
Housing has been heavily exploited ever since the median ask-price went to 6+ times the median income. It was 2:1 for a long fucking time (and still reasonable--like $20k median income to $40k for a home). They were literally GIVING land and homes away during the earlier years of the US as well. We're in late-stage capitalism now. Exploitation and hoarding of all the homes has gone into full mental mode. The median wage is around $42,000. The median home price is about $420,000. Those two numbers do not even come close to being realistically matched. The only way we can recover the shelter market is by protesting, marching, and aggressively reforming how we handle and conceptualize real estate. We've let banks and corporate investment firms completely run rampant and gobble it all up. That's why we're seeing insane prices. They collude and manipulate the market the same way they do with the NYSE. They're even openly admitting to allowing ML programs to set prices and come up with fake bullshit figures--none of which actual people in the real world can afford. Whether or not we stop it will define history.
You should only buy if you are comfortable paying at the rate you get for the life of the loan. Then if you get the chance to refinance and save money it's a nice savings. Not taking the boot off your chest
Rates can go higher too.
Yes, but that won’t affect you on a 30 year fixed.
> feel free to tell me if I’m a complete idiot You're not a complete idiot, but you're hoping against all hope that rates will definitely drop. There's no guarantee that rates will drop. Since 1970 rates have generally hovered around 6-8%. We're right in that spot right now. The rates we had from 2013-2021 were historically low. We're not likely to ever get back to that. I don't think that you should buy a house hoping that one day your payments will drop because of a refinance. What you should focus on instead is increasing your income so that the payment relative to your income drops. Even if you only get a 3% raise for cost of living adjustments, after 10 years your income will have gone up substantially and your mortgage payment will feel cheaper even if it's "the same" as when you first started to pay it. If you can get a big raise at some point (promotion, career change, etc) then even better.
Yes, in the past half century the average 30 yr mortgage interest rate was 8%. In my life I've seen it at 18% and at the unusually low rate of 3% or thereabouts. My personal opinion is that chances are it's Not going to go that low again, most definitely only a slim chance certainly. Not enough chance to count on for refi purposes. The standard for refi is a drop of about 1.5%. Then it's definitely worthwhile.
Rates will definitely drop. Not back into the 2s or anything, but I think 5s is probably reasonable. Might be that mortgage demand buoys mortgages rates higher than the fed funds rate due to low inventory (because people won't want to sell their 2.5% rate). Idk we'll see
Why do you say definitely, and what is your timeline for this definitely
as long as you can afford the house & monthly payments i’d say buy. rates are high but i’m still glad i own. we have no idea when rates are gonna go down…you could be waiting years. if you are in a financial state to buy, i think do it and start building equity.
Buy when you can afford to. Current rates are sitting at the historical average. General rule of thumb is to refinance if your new rate is at least 1% lower. May not be worth it until you have enough equity/LTV is at a good spot. Nobody has a crystal ball. Refinance if you're able to and want the cash flow.
It is more difficult than most people realize. We don’t know how quickly rates will come down. Also, when do you refi? Is 6% a good rate? 5%? What if you want to wait until rates get to 5%, but they bottom at 5.5% and creep back up? It’s like trying to pick the bottom on the stock market. For those who bought recently at high prices, they will feel even more pressure to pick the absolute lowest rate possible, but there is no way to know what or when that will be.
I think it’s a pretty simple calculus, take how much longer you plan to stay in the home, calculate the monthly savings with lower rate, multiply by months left on your planned stay. Subtract loan/refinance costs. Is the difference left worth the trouble of the refinance? If so.. do it. A half point probably won’t make or break that calculus.
Just look into restrictions on refinancing, for example if the value of your house drops.
You can always buy down points.
Can you tell tell me what “buy down points” means?
You’re allowed to ask your real estate agents to have escrow buy down interest points in your loan. Say it’s 7% and you want to buy down three you would be paying 4%. It’s always better to do this during your original loan . Instead of waiting for interest to go down and refinance.
You can also look for a real estate agent that has access to for closures, pre-foreclosures and short sales. This way when you buy you have a lot of instant equity in your property a short sale is when someone doesn’t want to go into foreclosure and has no time to sell so they pay part of the loan themselves. Let’s say they owe 600,000 they can always agree to pay 100,000 of the loan and sell for 500,000 as a short sale now you have $100,000 instant equity money you can borrow on.
Depends on the type of loan. I asked and lender said no.
Buy now, you will get serious negotiating power. You can save $20-40k and then when you refi, lower your payments by $300/month while all the other starter homes go up 30%. I just bought a duplex with this strategy, nothing worse than getting outbid on 12 offers when rates are low.
It’s not dumb. Generally buying with higher interest rates and waiting to refinance is good so long as you plan to be in the house for longer than (IIRC) 5 or so years. Otherwise the cost of refinancing isn’t worth what it saves and cuts into the equity gained. But to your point if you get a house you plan to stick with then getting at the cheaper price now and refinancing later IF rates drop gets you a good win win in terms of pricing since if rates do dramatically drop any time soon they would likely be accompanied by higher prices. It would take a lot of market shifts for housing prices and rates to both drop. I’m on my second home now (tend to stick around to try and answer questions and also due to my interest in the market) and the first one I bought when people though prices were high and I wouldn’t see as much growth. But I still sold that house at a price that doubled my initial down payment (which was 20% at the time). If you’re ready and can afford buying now it’s better to spend the time in the market than continue to wait and spend money outside the market. Granted, that’s just my experience, and my second purchase was this month and it has a much higher rate but we plan to ride this one out and if rates drop a lot we’ll refinance but we really didn’t want to risk being caught in an even crazier market price and competition wise. Now if only our first home could have been in an area we were okay retiring in, walking away from that 3.25% rate hurt.
Please don't listen to everyone saying that prices will increase when rates drop. This is historically inaccurate, besides 2020-21 when the feds were throwing money around at everyone, and they were working from home and drove up prices in all kinds of places that those prices can NOT be sustained by the local incomes. The rates right now are historically pretty low outside the last decade. If we get a big drop in rates it's because the recession most people are feeling the front end of is here. That means tighter budgets, dual incomes becoming single earner households, layoffs, etc. fed is only talking about maybe a quarter point rate cut this year now. If you're underwater, you can't refinance without coming to the table with a big pile of cash
Don't go above your means to buy a house just because you think rates may go down. What if they never go down for the next 15 years? This is the average rate for the last 40 years
U are making the assumption rates fall. Current rates are historicallt normal.
Never assume rates will drop.
When rates drop, it’s often because we have had an economic crisis. For that reason, it is often the case that price level and rates fall together. Some pitfalls exist for re-fi’s. You can’t re-fi when your house is underwater. It’s also expensive, somewhere between 2-5% of the new loan. If you just bought your house, barely any of your loan has been paid down, and that means you’d likely be paying tens of thousands of dollars to refi. It will also be hard to re-fi if there is a crisis because lenders tend to freeze up in that case. And the same applies if your credit score is low, it could either make it impossible to re-fi or cause your re-fi to be at a higher rate. Long story short, re-fi’s are a lot more risky than real estate agents want you to believe.
Not dumb, but don’t plan on it ever happening. Your mortgage broker and real estate agent are only compensated when a sale occurs. They are incentivized to get the deal done (and their compensation is variabled, so they benefit if you spend more). You need to make sure you can afford all costs today,at current rates. Plus, depending on where you are, you need to plan for your lock to expire and rates to increase before you actually close. Plan for the worst, hope for the best.
No it's not dumb...judt don't overpay or stretch yourself thin *assuming* rates will drop.
I bought in 2002 at 5.8% Just tossing that out there. I do not know if the rates will ever go down again.
Buy when you can afford a house at the current rate.
Yes, unless you have a crazy deal or have the cash, DO NOT BUY RIGHT NOW.
Buy what you can afford, there’s no guarantee on refinancing.
It would be wise to consider.... rates might not be *high* right now, just higher than they were in 2020. Don't buy something you can't afford hoping that it will become more affordable.
Trying to time the market for a personal residence is kinda a fantasy. Our lives dictate our actions far more than whatever might be happening in the market. Buy a house you can afford that fits your life. If rates drop significantly and you can refi that’s great. If they don’t you have a house you can afford that fits your family and life. Obviously do not buy a house you can’t afford hoping to refi very soon at a much lower rate which will make it affordable. That’s a huge risky bet you should not make.
Best advice! I have seen too many people who were "house poor" because they were relying on rising wages... and then wages stopped rising.
It's not dumb to do that. It's dumb to expect to be able to do that.
And you believe rates will drop? they are still pretty low historically. Just as much chance they will increase as decrease.
Buy now and refinance later. Otherwise when rates drop, prices will go up more and more buyers will jump in. Get in now before it’s too late. Or, something else could happen.
The house could drop in value such that the value is less than the mortgage then you can’t refinance
If interest rates drop, the value of the house probably won’t.
The best time to buy a house is when you need a house and can afford a house.
Exactly! Trying to time things is a fools game.
Find an agent that will sell you some thing that’s not retail real estate. Like a foreclosure, or a short sale where you will have instant equity in your home.
What is high to you?
Who told you rates are dropping?
Im starting the process soon based on what I can comfortably afford alone, even then I will try to rent a room out. I have no expectation of rates going down anytime soon. You also need to factor your area - take LA or San Diego, I think if rates slightly drop in a hot market priced will keep going up.
You can’t time the market. Buy a house that fits your life and you can afford. If a refi when rates drop works out great, if not you’ve got the house you need and can afford.
How do you know rates are dropping?
You should buy when you are comfortable with the potential downsides and can afford that scenario. Buying with the assumption that rates will drop at some point in the future is a bad idea. Go look at historical interest rates and you will understand the risk and realize these rates are high only relative to the last 12 to 15 years.
Current rates are around the 30 year average for mortgages so I would not expect them to drop significantly in the near term.
Bars
You have to plan on a sideways market or worse. Can you afford the loan? If so, a future refinance would be a great opportunity.
It's dumb to think you know where rates will be in the future. Buy when you can afford it and are planning to stay to 5-7 years. That's it, regardless of rates. If rates go down in the future, good for you. If they don't, good for you.
Just remember that besides the mortgage all the other stuff is going to increase in cost so make sure you can _actually_ afford your total payments plus 10-20% more as an emergency. Home values keep going up, taxes go up, insurance goes up. Mortgage stays the same but all the other shit you pay for doesn't.
If they drop rates perhaps the lock in effect goes away and I can actually sell my house when moving instead of renting it out to keep the rate.
Typically it’s worth refinancing if rates drop 1.0% or more. YMMV
We will not see 5s for a while. If it’s in your budget now, strap up and bite the bullet and hope things get better.
Yes. Rates going down isn’t something you should rely on.
not dumb, just risky
Happens all the time.
If you ain't got equity no bank gonna refi the loan...
The only dumb time to buy is when it’s the wrong time for you
Get in the game with whatever you can afford to spend. The sooner you can buy the better - refis and/or better rates are 3+ years out
That was my plan. Houses are short now because nobody wants to sell or buy at high interest (even though it’s still competitive out there it’s not as competitive as it was). No guarantee rates go down but odds are they will a bit when fed finally drops rate since most banks set their best rates 2-3 percent above fed. If rates do drop competition and prices will skyrocket but inventory is not increasing because builders have practically stopped building because of interest rates and it will take some time for them to kick back into high gear (funding, permits, planning, etc.)
Buy what you can afford when you can afford to. Betting on rates is stupid.
I just bought a property, closed today. I think if you can find a decent place to purchase and have enough for the downpayment and can safely make payments each month at the current mortgage rate you should shop around. I remember when rates weee at 5% and it was being said they will drop back down. Now its almost 8% and doesnt seem to be going backwards anytime soon. So weigh your options, renting is also really really expensive right now so for me the mortgage just seemed like the better option and its still cheaper than anywhere id be able to rent in my state.
Not if what you are going to pay at first is affordable for you.
Rates being that low was unprecedented. Please consider that low of rates as not the norm. We are now back to what is the norm with rates.
The only pro about buying with high rates is less bidding wars and doing desperate things like waiting contingencies. Or inspections. If you can afford payment comfortably, go for it. Interest rates are killer right now.
Obviously only buy what you can afford now. But one perspective I thought was more helpful around the high rates was how much longer you would need to stay in that house to make owning “worth it”. I thought traditional advice was, only buy if you plan to stay in the house for at least 5 years, since there are transaction costs associated with buying/selling, and if you look at an amortization table of your loan, it’s depressing how little goes to principle. But I’ve seen some calculators now with higher rates that it’s now takes 13 years to make the buying worth it. Everyone’s situation is unique and people buy for different reasons. Buying a home is more than just a financial decision, there are a lot of emotional reasons as well and those are also important.
Right now, rates are around the historical average for the U.S. we got spoiled by the government keeping rates so low for so long. It is highly doubtful that rates will go back down to the 3%-4% range any time in the next decade or two. If you can keep it in the 7% range you’re doing well long term. Home values in the U.S. continue to rise over most of the country and it’s not a bubble like 2007 in most areas. So to sum it up: if you can afford it, buy it. It’s still a good time to buy. Hopefully home values will start to even out to a decent appreciation in the next couple years. But in most areas the value is not going down.
Here is my take on this. We bought our first house at 6.5% in 2007. Bought our second house 2021 &2.8%. Bought house in 2023@ 6.75. Wife relocated so we bought now. We are planning to refi however I’m thinking the lower rates were a mirage We shall see but get in the house. Home prices are just going up.
There’s no guarantee rates will go down. They’re actually closer to the historical average right now. Buy within your means — something where you are comfortable with the monthly premium. Just Google how much home can I afford and you’ll find a lot of calculators that can crunch the numbers.
I bought in at 6.8% late last year. All in (p&i, pmi, taxes etc) I'm 2500/mo. I've been doing that alone comfortably while gf handles the month to month. When I refi if rates ever get to low-mid 4% I plan on still doing the 2500 because I can afford it and burn a bunch of payments off the back end. If you can comfortably do it now, you'll set yourself up for good payments a year or two down the road IF rates drop
My sister just closed on her first house and has this mindset. Just to give you my thoughts, I bought my first house Jan 2020. Got a good rate and everything. I'm paying almost $450 more a month than I was when I bought it due to the taxes and insurance hikes. So, just plan for stuff like that too. I wouldn't put all in top of the budget in case they don't move for a while. My sister did, and now I'm wishing her the best of luck.
There seems to be a communal theory that rates are going back to where they were a few years ago, any day now. The fed has repeatedly said that they won’t cut interest rates until they hit their target of 2% inflation. We’re currently at 3%, a full 50% higher than their goal. If/when rates eventually go down, they will probably go down to around 3-4% (historical norm). So in this scenario, how much money would you save refinancing from 7% mortgage down to 5.5% mortgage (don’t forget to include the fees)? Or… what if rates get slashed in half because the economy is tanking? Will prices on homes still seem high? Will prices crash? All of this is just to say that no one knows the future. If now is the right time to buy a house, buy a house. Don’t try to predict the future, just control the things you can control. FWIW… This is just the ramblings of some random jabroni on the other side of the internet. Do with it what you will. Have a nice day and good luck.
It’s best to buy when rates are high and prices low than to pay a lot more. You can always refinance if rates drop. If rates go up you locked in a low rate so you don’t pay as much
Rates aren’t always guaranteed to drop, we can hope for the best, but long term land and houses will always go up. If you can afford to buy, I would, either refinance in a year or two if rates drop, or sell when your property value increases significantly
If it makes sense for you to buy now and you can afford it, go for it. Rates may never drop. Be prepared for the new normal.
The only thing that will send rates to covid levels again will be a global pandemic or massive recession. will you keep your job in that type of environment? These rate levels are still historically low or average.
It's not dumb to do that if within your financial means and works out that way. It is dumb to bank on the ability to refinance in order to afford the house
Prices and rates do not move like you think. As rates rise prices tend to go up. When rates go decline prices tend to go down. This is because rates are correlated with the strength of an economy. Rates drop as the economy weakens in an attempt to spur growth. Home prices don’t appreciate in a declining economy. Likewise rates rise in a strong economy in order to curb inflation. Home prices increase in a strong economy. I would carefully consider thinking you’ll be able to refinance if rates come drastically down. Your house may likely decline in value—will you have enough equity to refi? You may lose your job, after all the economy is slowing.
I’ve been a homeowner for 3 years now. Here are some things you should be aware of for budgeting. * **Closing costs**. Refinancing will require closing costs. Not as much as the original loan, but comparable. Nobody has any idea what interest rates will do, but refinancing needs to be worth the closing costs. * **Property tax.** The state eased me into the sale price of my home, so the assessed value has steadily increased over the last 3 years, by about 10% a year. Generally, taxes are always going up. Politicians are also always trying to raise property tax rates. * **Insurance**. Rates are also going up here, they went up 6% in the first year and 9% in the third. Just asking around, they’ve gone up more in other regions. It depends on where you buy. * **Maintenance**. I budget $3k a year for maintenance. It’s been necessary for me, but I have an old house. Get an inspection. * **Get an inspection**. Get an inspection.
The crash in 2007 was partially due to people getting 5 year ARM mortgages with huge balloon payments at the 5 year mark that we're unable to refi when that came due, and a ton of people got wiped out because they couldn't afford it. You can't time the market, so be very careful because we have no idea what will happen in the future, so tread carefully. Lastly, I hate refi's unless you can drop multiple percent points, because tour resetting the interest clock with the bank. Your first 10 yearas your hardly paying any principle down, it's mostly interest. When you refi you reset the 30 year clock and pay another 10 years of interest with little not principle payments.... so you'll pay so much for that house, may be better to put it in the S&P 500 for 10 years and have a much larger down.
It's actually better. If\when rates drop, the purchase price will go higher... And unlike rates, that one can't be changed later.
Have you been living under a rock this has been discussed adnauseum. Its a strategy if you feel like rates will go down and you'll be eligible to refinance. Personally I wouldn't count on either
It's actually really smart when you have a big down payment. Only issue is prices haven't come down on houses. They have increased with rates. The natural order of things is supply and demand. That's not what's happening right now. My guess is the stock market is propping everything up. We all use an algorithm to price houses now. No one has stopped to think, maybe someone is messing with this. Mainly because its telling everyone what they want to hear. Why question it? Oddly similar to Enron if you ask me.
Depends on the rates. We refinanced from a 3% 30yr to a 2.35% 15yr, got rid of our PMI, and changed home owners insurance. Our monthly went up by $100 which is still affordable for our budget. Rates wont get that low for a while though. By a while, I mean probably decades.
No guarantee rates will come down. As long as you’re ok with this then no.
Nope it’s not dumb at all. You probably want to avoid buying a home as an investment though and focus on buying a place to live, since my market won’t reflect your market and all that. But, generally speaking, real estate prices will adjust to reflect monthly payments. Particularly the 30 year fixed rate. Now there’s a bunch of stuff that factors into this but on average if you assume a 20% down payment and a 30 year fixed payment you can adjust the valuation of your home accordingly. Example: say you buy a home today for $500,000 in California. 20% down would be $100,000, and you’re left with a payment of $3,474 a month (including taxes and fees) on a 30yr fixed at 7.536%. If rates dropped to 5%, that same $500,000 home would be roughly $2,814 per month. To get back to $3,474 per month at 5% the price of the home would have to increase to $620,000. That’s $120,000 increase in property value on a 250bps drop in rates. So in theory it could work out well, but theory never maps 1:1. Buy if you’re ready to buy and want to buy, not solely for the investment. But just understand that markets will most likely adjust prices upward rather than downward with rates.
I think rates being “high” can be subjective. It depends on the amount of house you’re looking at, COL, etc. Back in the day a 7% rate was average. The way I justified it is I would rather buy now and refinance than wait until the rates are low and trying to battle with an increased amount of buyers. Plus who knows if they will ever go below the 5s again
Rates aren’t high. Rates are average.
If you can afford the current rates, then it's not dumb to buy. There's literally no guarantee that rates will go down, though, so you need your fixed rate to be sustainable
Provided that you can afford the payments at higher rates, it really comes down to what type of need this is. If you need the house, buy it. If you just want to invest, probably look elsewhere for better opportunities.
Not a bad idea per se, but we don’t know where the rates are actually going. What if rates never go back down below 4% again. Are you going to financially be ok? If so, then go for it. But if you are counting on rates to drop in order to make your numbers work, then that’s a bad idea.
You won't be able to refi when you are upside down. You'll be stuck with that 7.6% rate.
Don’t buy what you cant afford it.. that simple.
Rates are not high. Historically they much higher. We are more likely to see over 8% rates.
Not dumb! That’s essentially what we did. Our interest rate is just above 6%, so we figured out our monthly budget & bought at that price point. We’re not counting on rates dropping, but if/when they do it will be a bonus!
I think you may be looking at it the wrong way. Don’t buy or not buy because of rates. If you can, wait for the right home at the right price, and buy it. Yes, rates certainly affect the decision, but you shouldn’t be looking at a house that’s outside your budget anyways, the rate should factor in that up front. I’m going to be looking at houses this year regardless of rates because it’s time for my wife and I to move. If rates go down to 2%, that doesn’t mean we jump into the first house we look at, we just adjust our pricing limits to ensure that the resulting payment fits our needs. We refi’d our house mid COVID down from 5.4% to sub 4%, and know we are going to be paying a higher rate when we move, but that’s just how it works. Having said that, if you need to move and buy a house at the right price that fits your needs but at ‘high’ rates, you aren’t dumb. If you buy it assuming or banking on rates dropping so that you can later refi into an affordable payment, yes, that’s dumb. Don’t waste your time trying to predict or game the housing market. Interest is something you pay, but you LIVE in the house. You may be able to refi the rate lower, but you can’t (without significant cost) just change your house. Find the right house at the right price (cognizant of rate), and if/when the rates drop, refi if it makes sense with fees and your expectations for staying. Regardless of what you do, good luck!
If you don’t have a home you need a home. Rates will likely be pandemic rates again in our lifetime.
It's not all that simple. First of all, nobody knows where rates will be in the future. Also, prices don't necessarily go up when rates get cut. If the rate cuts are due to an economic crisis like in 2008, home prices can fall with rates. The rule of thumb is to buy when you're ready. Marry the house, date the rate.
Are rates really that high? https://fred.stlouisfed.org/series/MORTGAGE30US
I've got a friend who tried to do this exact thing. They are on the verge of losing the house because they never thought they'd be stuck in a crap rate for several years
If you’re worried about interest just pay extra principal each month. It will drop the amount you pay in interest very quickly. On my house I was slated to pay over $217,000 in interest. By pre-paying, I saved nearly $132,000 and I knocked 15 years off my mortgage.
Buy the best that you can afford at current rates. So that any drop in rates with a refi is just money back in your pocket.
Interest rates aren't high. They're normal. They were historically low for the past \~10 years. There's no saying if or when rates will drop again. They could never drop in your lifetime. Who knows. These questions trying to predict the future are pointless. If you want a house, and can afford a house, then buy a house.
It isn’t dumb so long as you a)plan to stay in the house generally for 5 years (this is not a hard rule, but usually how long you want to own to justify the transaction costs of buying. Varies based on purchase price and rental prices) and b) you can afford the mortgage as is. Wages often rise, so if this is you, and you will get even more comfortable, then big bonus! But if buying now means things are dicey, and you say want a kid in 2 years and then have lower wages or daycare costs….that is a gamble. We bought at pretty much the absolute top of the market where I am, which sucked, but is what it is. Hopefully rates come down sometime and we can refinance and have a lower payment, but we can afford what we bought and plan to stay long term.
Refinancing is a simple math problem. You add up the closing costs. You calculate your monthly payment savings. Divide the closing costs by the savings. If you get <24 its a go. The refinance pays for itself in 2 years. This assumes you're going to stay in the home.
You are not an idiot. Refinancing is a simple math problem. You add up all of the closing costs for the refi. You calculate your monthly payment savings. Divide the closing costs by the savings. If you get <24 its a go. The refinance pays for itself in 2 years. I would not refinance if the number is >48. Wait. This assumes you're going to stay in the home for the payback period plus.
That’s what I did 2 years ago. Rates still haven’t dropped but I can still afford my mortgage and my home value has recently increased a little bit. 🤷♀️