Nationally, the real estate market is having challenges with having enough housing inventory to satiate buyer demand. That headline doesn’t come close to encapsulating the struggles and frustration felt by those actively trying to buy in this market. If you are currently trying to buy or are considering a move, here are some words of wisdom to consider as you determine how to forge ahead.
Understand all the resources available to you
If you make an offer and then learn that the next-highest bidder only spent $1,000 more on the home, would you be upset? What if the appraisal comes in low and there is a gap of $5,000? Of course, the goal is to stay in the budget, but sometimes things don’t always go as planned and you don’t want a small shortage to keep you from moving forward. Many buyers have found additional money by asking parents, tapping other savings accounts or even those old savings bonds that your grandma gave you! Before buying, definitely understand where your down payment and closing money is coming from, but it doesn’t hurt to have Plans B and C at the ready if you need a little more.
How changing the loan amount can affect your monthly payment
In a multiple offer situation, you want to be competitive, but indicating your price can escalate another $10,000, $20,000, or even $50,000 can be scary. Of course, you should work with your lender to determine the very top of your loan amount but additional money offered doesn’t have to equal a huge additional monthly payment. Below is the corresponding monthly payment to the additional loan amounts listed assuming a 30-year fixed rate mortgage at 3.5%.
| $10,000 | $20,000 | $30,000 | $40,000 | $50,000 |
| $44.90 | $89.81 | $134.71 | $179.62 | $224.52 |
Sometimes you have to spend more to make more
Although there is always a chance something unforeseen can change the direction of the real estate market, the current conditions of low supply and high demand aren’t expected to change much in the coming years. Those conditions mean increasing prices. Many areas have seen prices increase more than 10% in the last year alone. Although we don’t have a crystal ball and don’t know exactly how prices will change, imagine you want to buy a house listed for $500,000, want to go in with a strong offer and escalate up to $550,000, but are concerned about “overpaying”. At a 10% price appreciation, that $50,000 will have been made up in just one year.
Don’t panic about small interest rate changes
Although it is true that one’s buying power goes down when interest rates go up, that is true for the other buyers you are competing against. Therefore, a small interest rate fluctuation shouldn’t have you too concerned. The table below shows how different interest rates can affect the monthly payment of a $500,000 30-year fixed rate mortgage.
| 2.75% | 3.0% | 3.25% | 3.5% | 3.75% |
| $2,041.21 | $2,108.02 | $2,176.03 | $2,245.22 | $2,315.58 |
Remembering your big picture will help when faced with this roller coaster of a market. This is not a market in which to agonize over every penny or refer to your spreadsheet obsessively. Know your bottom line and be comfortable knowing how much money you ideally and actually have to work with.
The Harlan Team 