Mortgage rates are on the rise and home prices are steadily climbing. Can you still hope find your dream home and afford it, too?
The question is top of mind for service members changing station, or transitioning out of the military. First-time homebuyers are in the same boat.
“Rates have been low for quite some time, and they’re still low when you compare to historical averages,” says Robert Frick, corporate economist at Navy Federal Credit Union. “A smart homebuyer is much less concerned with rates. The real focus should be on landing a home without buying more house than you can afford.”
Supply and Demand
According to the National Association of Realtors, the average home is on the market for only three weeks before it’s sold. In major markets, homes sell even faster. Five years ago, homes lasted 11 weeks on the market. So, what’s this mean for you?
“Supply is low, and has been for several years,” says Frick. “This will continue because not enough new homes are being built, and those with existing homes are selling at a low rate. So, home buyers need a strategy to win a very competitive market.”
Some tips to guide your strategy: research your location of choice, know what you can afford and get pre-approval for a mortgage from your financial institution. Having a strong relationship with a lender you trust is key. They’ll be able to provide you with guidance, a pre-approved mortgage and the information you need to act fast when it’s time to make an offer.
What about the rate?
Your mortgage rate plays a role in how much house you can afford, but given rates are still below the historical average, don’t fixate on it.
And while mortgage rates have risen noticeably in the past year, the rise has been relatively small. “If rates go up by half a percentage point, that’s only an extra $90 on your monthly payment if you’re buying a $300,000 home. If $90 is going to break your budget, you should rethink what’s affordable to you,” Frick adds.
However, there are options when it comes to mortgage products that may help you afford the home you want. Check with your financial institution to learn more. You may find specials for first-time buyers. Form a relationship with a mortgage lender you trust.
If you’re in the military, you’ll want to work with a financial institution that understands your needs. Be sure to consider a VA loan as they sometimes come with lower rates than standard products.
What to know before you start
If you already are in a home, may even find you’re already in your dream home, but it just needs some work. Don’t be afraid to tap your home’s equity for upgrades if you need to. Plus, home improvements go a long way whenever you plan on selling.
Because the market for homes is likely to remain competitive for years to come, your purchase or your home improvements should be a great long-term investment. By being confident and prepared, you’re set up for success in today’s housing market.
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Navy Federal is federally insured by NCUA.