Mortgage rates have been steadily rising since early last year, with the average rate on a 30-year mortgage now almost 7%, more than double the rate seen at the start of 2022. These soaring rates have undoubtedly made buying a home more expensive, causing the median mortgage payment to increase by 14% from a year ago. However, amidst these challenging conditions, a popular saying has emerged: "Marry the house, date the rate." This approach suggests prioritizing finding the perfect home while treating the interest rate as a temporary variable. In this article, we'll delve deeper into this strategy and explore when it makes sense to adopt it in today's real estate market.
What Does "Marry the House, Date the Rate" Mean?
"Marry the house, date the rate" encourages prospective homebuyers to focus on finding their dream home and making a long-term commitment to it while not becoming overly fixated on the current interest rates. As Luis Carlos Perez, founder of Center Real Estate in El Paso, Texas, explains, "Focus on the characteristics of the property itself, as it's a long-term commitment while considering interest rates as a variable that can change over time." In essence, prioritize the property's suitability for your long-term needs over the current interest rate.
The core element of this strategy is the anticipation of refinancing. By adopting this approach, you accept the prevailing interest rates as a necessary step, with the intention of refinancing your mortgage in the future, once rates have fallen and you've finished "dating" the initial rate.
When Is It Smart to "Marry the House, Date the Rate"?
Embracing the "marry the house, date the rate" approach can be a smart strategy if you follow two key rules:
1. Ensure Affordable Payments: The mortgage payment should be within your budget for the foreseeable future. There's no guarantee that rates will drop soon, so it's essential to avoid overextending yourself or putting your home at risk of foreclosure. As Melissa Cohn, regional vice president at William Raveis Mortgage, advises, "If you find the home of your dreams at a good price, then it is always the right time to buy if you can afford the mortgage payment."
2. Secure a Good Price: Buying the home at a reasonable price is crucial. This not only helps offset the cost of higher rates but is also a non-negotiable variable.
Robert R. Johnson, an author and professor of finance at Creighton University, emphasizes, "You have the option to renegotiate your mortgage rate if rates fall, but you can't renegotiate the purchase price."
When Shouldn't You "Marry the House, Date the Rate"?
The "date the rate" strategy may not be advisable if you are in a particularly hot housing market. In such cases, you may end up paying an inflated price for your home, on top of the already high mortgage rates. Luis Carlos Perez cautions, "It might be ill-advised to strictly follow this strategy if you are on a tight budget and the current interest rates are exceptionally high."
Additionally, this strategy is less advantageous if you don't plan to stay in your home for an extended period. While refinancing can help you capitalize on lower rates later, it comes with associated fees. To break even on these fees, you must remain in the home long enough to save more than they cost you. For example, if refinancing costs you $5,000 but saves you $100 per month, you'll need to stay in the home for 50 months to make it a worthwhile move.
Other Ways to Navigate Higher Mortgage Rates
Choosing to "marry the house, date the rate" isn't the only option when dealing with higher mortgage rates. Here are some alternative strategies:
1. Explore Alternative Mortgage Products: Consider alternative mortgage products that offer lower rates than traditional 30-year loans. Adjustable-rate mortgages (ARMs) provide lower interest rates for the initial years, making them ideal if you plan to sell the home before the rate adjusts. Shorter-term loans, like 10- and 15-year mortgages, also feature lower rates.
2. Buy Points: Buying points, also known as buydowns, allows you to pay an upfront fee in exchange for a lower interest rate. Sometimes, the seller, your agent, or even the lender may cover these costs.
3. Consider a Lower-Priced Home or Larger Down Payment: Buying a lower-priced house or making a larger down payment can reduce your loan balance, potentially qualifying you for a lower interest rate.
Will Mortgage Rates Go Down Soon?
While there's no certainty about future mortgage rates, many experts expect a decline in the coming years. Fannie Mae, the National Association of Realtors, and the Mortgage Bankers Association (MBA) all predict that the average rate on 30-year mortgages will decrease. MBA's projection suggests rates falling below 5% by the end of 2024.
However, these predictions depend on factors like inflation and the Federal Reserve's actions in response to it. If inflation remains high and the Fed continues to raise its benchmark rate, mortgage rates could increase further. Conversely, if inflation cools and the Fed stops or reduces rate hikes, mortgage rates may fall.
The Bottom Line
In today's real estate market, mortgage rates are notably high compared to previous years. While the "marry the house, date the rate" strategy can be beneficial for some homebuyers, it's not the right approach for everyone. Always consult with a mortgage professional or financial advisor to determine the best financial strategy for your circumstances. If you do decide to "date the rate," ensure you are comfortable with the initial rate and payment, as there's no guarantee that rates will drop during your homeownership journey.
What Is APR?
APR, or annual percentage rate, reflects the interest rate plus other loan-related charges and fees. This includes loan origination fees, mortgage broker fees, mortgage insurance premiums, discount points, and some closing costs. APR provides a more comprehensive measure of the true cost of borrowing than the interest rate alone.
What Is a Housing Market Correction, and Are We in One?
A housing market correction involves the market returning to a state of balance after a period of price increases. Typically, a correction is defined as a roughly 10% drop in home prices. It's distinct from a housing crash, which involves a more significant and unexpected decrease in prices. Currently, the housing market appears to be experiencing a correction, with home prices stabilizing or slightly declining.
Is Now a Good Time to Sell a House?
The ideal time to sell a house depends on local market conditions. Factors such as buyer demand, interest rates, and inventory levels in your area play a crucial role. While high mortgage rates may impact the market, it's essential to consult with a real estate agent familiar with your area to make an informed decision about selling your home.
Should I Lock My Mortgage Rate Today?
With rising mortgage rates, the decision to lock in a mortgage rate depends on your specific circumstances. A mortgage rate lock guarantees an interest rate for a set period, offering protection against rate increases during that time. However, you should consider factors like your lender's policies on rate locks and whether you anticipate rates decreasing before your lock expires.
How Does a Mortgage Interest Tax Deduction Work?
The mortgage interest deduction allows homeowners to deduct mortgage interest payments from their taxable income, subject to certain limits. It applies to mortgage debt up to $750,000 (if filing jointly) or $375,000 (if married filing separately). Keeping track of home improvement expenses can increase your cost basis, potentially reducing the capital gains tax you owe when you sell your home.
Are Adjustable-Rate Mortgages (ARMs) Smart Right Now?
Whether an adjustable-rate mortgage (ARM) is a smart choice depends on your plans. ARMs typically offer lower initial interest rates but come with rate adjustments in the future. They can be a good option if you plan to move or refinance during the initial fixed-rate period. However, ensure you can handle potential rate increases down the line.
How Can I Avoid Capital Gains Taxes on Real Estate?
To avoid capital gains taxes on real estate, consider living in the property for at least two years before selling, selling before your profits exceed the allowable exclusion, selling before filing for divorce (for a higher exclusion), timing the sale during a low-income year, keeping records of home improvements, and exploring partial exclusion options if you were forced to move due to certain circumstances. Consult with a tax professional for personalized guidance.
What Is the Difference Between an FHA and a Conventional Loan?
FHA loans are guaranteed by the Federal Housing Administration, making them more accessible to borrowers with lower credit scores. Conventional loans, on the other hand, are not government-backed and tend to have stricter qualification requirements. The choice between FHA and conventional loans depends on your financial situation and credit profile.
Work with Professionals Who Understand The Real Estate Industry
In navigating the intricate landscape of today's real estate market, it's essential to emphasize the importance of working with professionals who understand the nuances of the industry. At Nebraska Realty, our experienced real estate agents bring a wealth of knowledge about local markets, trends, and negotiation strategies, ensuring you make informed decisions and secure the best possible deal for your dream home.
Additionally, collaborating with a reputable mortgage company like Arbor Bank in Nebraska offers you access to mortgage experts who can tailor financing solutions to your unique needs, guiding you through the complex process of securing a loan. With the support of these experts, you can confidently embark on your homeownership journey, whether you choose to "marry the house, date the rate" or pursue alternative strategies, knowing you have dedicated professionals by your side every step of the way.
Omaha Homes For Sale
If you're ready to embark on the journey of "dating the rate and marrying the house" in Omaha, Nebraska, you can take the first step by visiting our website at Nebraska Realty. We offer a comprehensive database of "Omaha Homes for Sale," providing you with a valuable resource to kickstart your search for the perfect home. Our listings are updated regularly, ensuring you have access to the latest properties on the market.
By beginning your search with us, you'll not only find a home that suits your long-term needs but also benefit from the guidance and expertise of our dedicated real estate professionals and partners like Arbor Bank, who are committed to making your homeownership dreams a reality.