The best time to dance is when nobody’s looking. The same goes for home buying. The days of actual historically low-interest rates might be over but that doesn’t mean your opportunity is! Take a look at some ways to slay fears and be confident in your home buying process.
Rent Vs. Buy
Should you continue to rent or take the leap and buy? This is always the start of the conversation, in fact, we have a whole blog dedicated to it! We dove into the MLS for relevant numbers and are seeing rents rise in Philadelphia. In 2020-2021, depending on location, the number of new leases increased by 44-90% indicating that Philadelphia's rental market is growing. In 2021-22 rental rates went up across all zip codes by 4.8%-9%. What used to be Philadelphia’s median rental price of $1,800 /mo, has shifted to $2,125 /mo
As a renter, the news that in 2022 Philadelphia property taxes increased significantly for the first time in three years may not be on your radar. As a landlord, that increase, which goes into effect in 2023, reduces cash flow significantly. The cost of goods has gone up as well, so a washer and dryer that conked out on the last tenants needs to be replaced at a higher cost. All those increases are incorporated in the rental rate, meaning as a tenant, your monthly payment goes up each year.
PHG agent Kate McCann looks at it this way “ The fact that the interest rate is 6% vs 4.75% on a $350k home is going to be about a difference of $250 a month in your mortgage. Take that and times it by twelve and you get $3,000. That can feel like a big sum. But now, look at renting for another year for $1900 bucks a month, that works out to $22,800 a year! So signing a lease for another year to avoid a higher interest rate means you’re spending more, and not even to your own dream but to someone else's investment”.
What’s happening with the market?
Looking at the big picture of how the higher interest rates are influencing the market is a smart move for a savvy homebuyer. Of course, we have another blog diving into the nitty gritty numbers. The silver lining of higher interest rates vs those in 2020 and 2021 is a cooling off of the Philadelphia market. Fewer buyers are competing against each other for the same properties. We are seeing offers accepted at, or under list price, and seller assists are making their way into the agreement of sale again. All of this is good news for buyers.
PHG Carolyn Perlow shared her thoughts during a recent stop into the office “In the big picture, 6.5% interest rate isn’t really that high. It’s higher than it was yes, but the fact that rates dipped to 2.5 and even 2.25 was historic and should not be considered the norm. Buy now and refinance later when the rates take a dip back down in the 5% range”.
This mirrors Lender Tara Gore’s slogan “Date the rate and marry the home”. You can always look to other ways to secure a better rate such as refinancing when the time is right, but the home, your investment, is yours regardless. “When you purchase a home, you’re making an investment and from that day it will start to appreciate. So get in there and get your home working for you, don’t let the rate hold you back. At the end of the day, the equity of your home, refinancing, and tax breaks will make it worth taking the plunge. People ask me “What if rates don’t come down?” if they're only going up from there then 6% is better than 8% down the road”.
Take a look at other types of loans
Both ARMs and Jumbo Loans are not financed by government agencies so they can provide a bit more flexibility. Know they are slightly harder to obtain, your credit should be sparkling and your finances in order. These two types of loans don’t always come through at lower rates than conventional, so be sure to talk to your lender about what is right for you before you set your wallet on the table.
Jumbo Loans
When you’re hearing about mortgage rates in the news it’s often referencing conventional mortgages which have a maximum limit you can borrow. In Pennsylvania, that amount is $647,200. If you’re looking for a property over $800k you’ll be using a jumbo loan, which at the moment can provide better rates than a conventional mortgage. Because these are loans that are written in the private sector there is more flexibility in the rate as they aren’t tied to government agencies. A way to get more home for your buck!
Adjustable Rate Mortgage
Using an ARM (Adjustable Rate Mortgage) is another way to go. Using a 10yr ARM as an example: You’d lock in at today's rate (that’s currently lower than a conventional mortgage). Once that 10 years is up, the interest rate will adjust yearly, each year for the life of the loan. PHG agent Allison Fegel encourages clients to inquire about ARMs “At the moment rates are lower than 30-year fixed loans. If you know you aren’t going to be staying in the home more than 10 years, ARM is a great option. You can secure the lower rate and sell before it adjusts. If you are thinking of owning this home for a longer term, you can also plan to refi when rates are lower, possibly even before that 10-year mark.”
No matter which way you look at the interest rates of today we hope it’s with a glass half full. Stop by the office, or carve out some coffee time to meet with an agent who can fill your cup with options and ideas that will be best for your home journey!
