September 5, 2023
Interest rates on FHA home loans, VA mortgages, and conventional equivalents are higher in 2023. Consider the rates listed in the first five days of September, when the numbers reflected rates between 6% and 7.6%.
Those numbers are a serious increase from the record-setting interest rate days of 2020. Looking at just one day, 16 September 2020, we learn home loan interest rates were listed below 3% for qualified applicants.
Despite the higher numbers we see in the fall of 2023, some borrowers will not wait for rates to come down. Instead, these borrowers are applying, getting approved, and buying now regardless of rates.
Why do some choose to buy now? Are they taking foolish risks with their money?
Not in all cases. Some borrowers enter the house-hunting process with a strategy. They choose to buy now with higher rates with a plan to refinance later once rates have lowered.
When rates are higher, some will choose to wait to commit to a new home loan. But after all that waiting, once rates fall, those who decide to wait may return to the housing market. When enough of these buyers do so, they create more competition for each property up for sale.
As you might guess, more competition means the seller has more power. There is no seller incentive to lower the price, pay 6% concessions on closing costs, etc.
The borrower who purchased her home when rates were still higher in 2023 isn’t directly affected by an interest rate drop. Unless that is, the borrower was approved for an FHA adjustable rate mortgage, and that very first rate adjustment period lies ahead.
Dropping rates will benefit these homeowners because those lower numbers make refinancing a more attractive and affordable choice.
But the plight of the person competing for those new lower rates once they become available may include too much competition for the house you want to buy.
Could that circumstance override the savings you might realize with a lower rate? Much depends on individual circumstances, but the implications are clear.
If you already own your home when rates fall back to lower levels, will a refinance loan be easier when the time is right? For some, it will be simpler than purchasing existing construction homes. when the market recovers.
If you want to buy and refinance later, maintain your good credit scores and loan repayment history after the purchase loan closes in anticipation of applying for a refi loan. Don’t slack off on monitoring your credit or making on-time, every-time payments.
Don’t apply for any other major line of credit, keep your debt ratio low, and work on lowering balances on your monthly credit accounts as you save and prepare for the refi loan.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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