House hunters this spring may feel like the deck is stacked against them even more so than last year. Interest rates are going up, home values continue to increase, and the demand is still in favor of sellers. Those who have been waiting to buy shouldn’t be discouraged though. The reality is you can still find a great home with the right strategy that fits your goals.
Don’t let the headlines scare you. Right now, the difference in what a mortgage payment on a $200,000 home would be with today’s interest rate compared to a rate from this time last year, is roughly equivalent to your monthly video streaming subscription. Yes, you will be paying more, but likely, not by much. This is an excellent time to reevaluate your budget and narrow down the features you really need in a home.
Potential home buyers should take the time to define their five-year goals. What stage of life are you in now compared to the life stage you will be in five years from now? Homebuying is often a cycle just like life. Buyers typically find themselves in a starter home before upgrading, then buying or building their dream home. Finally, they may downsize to fund retirement and match their new needs.
Today’s market really favors those that are looking to downsize. Retirees and empty nesters can get a lot of value for their homes now and cash that in for a smaller space that better fits their lifestyle.
The other available option is to avoid the competitive market altogether and build your house. Here at Teachers Credit Union we’ve seen a big increase in construction loans. In the first quarter of this year alone, we’ve processed three times as many construction loans as we did during all of 2019. Building a new home can often be more expensive and time consuming, but if you can lock a rate in now, the return on your investment is often much higher. Building a starter home is a good option for those who have the time and money to wait for a bigger payoff on their next home purchase.
Lastly, for buyers who want to get into a house now but know they will be upgrading in five years, you may want to choose an adjustable-rate mortgage (ARM) over a traditional fixed mortgage. The initial rate on an ARM is always lower than a fixed mortgage rate and will increase or decrease over time. Typically, ARMs are less expensive, especially in the first three years. If you’re already planning to move in five years, ARMs could be a less expensive option in the long run.
No matter your life situation, right now is still a great time to buy, sell or build a new home. Interest rates will fluctuate, but you can’t start building equity until you’re a homeowner. Renting will become increasingly expensive as landlords pass along higher costs to tenants. Take advantage of recent tax returns and use that towards a down payment on a home. Your future self will be glad you did.