Nobody likes to hear that interest rates are on the rise. It’s hard to be a new homebuyer and not associate looming rate hikes as yet another hoop to jump through in the journey to becoming a homeowner.

Recent data from the National Association of Home Builders (NAHB) found that 87.5 million households can no longer afford a median priced home.¹ But as consumer pessimism is beginning to fester, it’s important to keep a level head and see the silver lining within the rising rate environment.

In many ways, rising rates can help create a more balanced housing market, to the benefit of buyers who can stick it out and leverage key advantages throughout the purchase process. If you’re determined to make homeownership a reality, here are a few ways to leverage rising rates to your advantage.

Tactful Techniques to Help Tackle Rising Rates

In the wake of recent rate hikes, it’s easy to get discouraged about finding a property that fits your ever shrinking budget.

However, rising rates also present opportunities for buyers that could help offset the additional costs involved with financing a new home.

1.  Adjusting Your Purchase Price

As interest rates increase, more buyers become priced out of the housing market as the cost of borrowing becomes greater. In this way, higher rates also dampen demand.

As demand for homes begins to wane, it can have an adverse impact on home prices. While rate hikes alone won’t cause home prices to crash, it should help them cool. This opens opportunities for borrowers who can stick it out in the face of market changes.

While it was common for many purchases to have bidding wars, those are becoming a little less common. In fact, sellers may begin to be a little bit more flexible on their asking price.

If you are still interested in putting an offer in on a home, consider adjusting your purchase price downward to reflect changes in the market. Maybe throw out that escalation clause or even use this opportunity to negotiate a seller’s credit in lieu of a price reduction.

2.  Start to Add Back Key Contingencies

Another factor to consider as interest rates start to tick upward is that there will be less competition in the market. This means you have a little bit more breathing room when it comes to making your offer.

While in seller’s markets it can be common for buyers to waive contingencies to help pump-up their offer, but there is also risk to waiving such provisions. As the rate environment puts pressure on sellers, consider slowly adding some of these key contingencies back in.

Especially since it can be much harder to qualify for financing with rates being elevated, it’s a good idea to make your offer contingent on securing financing at specific terms. Opting for a home inspection is also never a bad idea.

3.  Shop Multiple Lenders for Financing

As interest rates increase, refinancing activity often starts to dry up and lenders pivot to purchase transactions. It also means tighter profit margins for lenders as they must compete more on price.

It’s important to leverage these market conditions to your advantage if you are looking for a new mortgage. You should always shop multiple lenders and compare the annual percentage rate (APR) being offered to see who can offer you the best pricing.

Another benefit to financing a new home now is that lenders are focusing on efficiencies to decrease overhead thereby freeing up additional profits. This often translates to faster pull-through rate meaning you can get to the closing table faster.

 

Sources

1 National Association of Home Builders. (2022, March 7). How Higher Interest Rates Affect Housing Affordability – NAHB. NAHB. Retrieved March 7, 2022, from https://www.nahb.org/blog/2022/03/how-higher-interest-rates-affect-housing-affordability/

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