What to Do While You Wait for Rates to Drop
Photo by Drew Coffman on Unsplash
We’ve said it before, and we’ll say it again: If you can manage it, now can be a good time to buy, even though rates are comparatively high. In fact, if you play your cards right, you can actually save money and gain greater equity in the long run. However, if you are feeling skittish about getting into a mortgage with today’s rates, or if you’re a prospective seller who wants to hold out for stronger buyer demand, there are some things you can do in the meantime to strengthen your position.
What Should Buyers Do Now?
There are a number of steps you can take to improve both your financial situation and your personal and emotional preparedness as a prospective buyer. When the time comes to buy, you’ll be more ready to act swiftly and confidently.
Save Money
This is a pretty obvious one. The more money you can amass for a down payment, the less of a mortgage you’ll be paying interest on, and therefore the lower your monthly expenses. Moreover, a higher deposit can also contribute to a lower interest rate.
While you’re not tying up your money in a mortgage, do as much as you can to squirrel money away so that you increase your buying power. One good strategy is to calculate the difference between your current housing payment and your projected payment (whether at the current rate or a rate you’re comfortable with), and deposit that amount into a high-yield account. One of the upsides to high rates across the board is that investments such as Certificates of Deposit (CDs) perform better. If you have a financial advisor, talk with them about how best to optimize your short- and medium-term investments.
If you have other sources of money, such as stock options or gift funds, make an assessment of how much money you potentially could bring to the table, and figure out what needs to be done to execute against that.
Improve Your Credit Score
The better your credit score, the more comfortable a lender will be to extend you a loan, and so the more likely they will be to offer a preferential rate. Chip away at any existing debt, pay bills in a timely fashion, and avoid any new credit inquiries or account applications. It’s a slow but steady process, but it can make a big difference.
Talk to Experts
Of course, talk to your Realtors® (that’s us!) to get a good sense of what you can realistically afford within your price range and wishes. But we can only advise you on so much.
First and foremost, we recommend talking with a lender to get your financing lined up. We work most closely with Monica di Perna at CrossCountry Mortgage, who has handled hundreds of our transactions, including our own financing. As a broker, she has access to multiple lenders with different programs. Until you know how much money you really have to work with, you cannot get in the game.
Again, if you have a financial advisor, it’s a good idea to talk to them to understand how you can best leverage your assets, and which investments make the most sense for your situation.
If you have a CPA, it’s also worth talking to them to understand the potential financial benefits of your mortgage. Higher rates mean higher interest payments, but that’s the part you get to deduct from your taxes. So, if a tax shelter is more important to you than affordability of monthly expenses, this could be a fruitful time to buy.
Start Shopping
The more time you take to explore the area and see homes, the better you will understand what homes work for you. Create a wish list of features you want, and prioritize them. We can set you up with a search that meets your parameters, so you’re always on the pulse of what new listings come on the market. Take the time to tour as many homes as you can — and not just the ones in the area you want. See homes in different neighborhoods, at different price points, and in different conditions. Ask yourself:
Would you consider other neighborhoods? Sometimes the right house is waiting where you least expect it.
Do you want a fixer? If you can nab a place at a lower price, does that free up capital to do some repairs, and do you have the stomach for it?
Conversely, if you find that the homes you really want are outside your range, what can you do to increase your budget?
What Should Sellers Do Now?
While higher rates can suppress buyer demand, there are always interested parties. Here are some steps you can take to put your best foot forward.
Declutter Your Space
This is an easy one. While we all love to be surrounded by our things, prospective buyers will be more able to see themselves in a place if they can look past all of your stuff. A cleaner, more neutral appearance will appeal to more people. If necessary, put items in storage temporarily, or feel free to pack in preparation for your eventual move — this will save you time and stress down the line. Once your home is lightened up, we can do photography and set you up for a possible off-market sale via Compass Private Exclusives. This is a great way to get your property in front of a network of agents without having to fully put it on the market. This way we can test pricing and gauge interest without having to incur Days on Market (DOM) on a listing.
Improve Your Home
If you know of any improvements that need to be made, now is the time to get them done. The better the condition of the property, the more appealing it will be to prospective buyers. We recommend doing a home inspection to make sure there are no surprises down the road, like pests or dry rot. Even simple things like a fresh coat of paint or some light landscaping can make a huge difference to how the property is perceived. If you want to do more substantial improvements, like an addition or full renovation, discuss with us first to see if the investment will net the gains you want.
If you don’t have the funds to make the improvements before the sale, we can help. Compass Concierge can front the costs with zero due until closing (or up to 12 months from the Concierge start date.) Those costs get paid out of escrow, so it won’t put the pinch on your bank account in the meantime.
And remember, the money you put into home improvement applies to your base, reducing the taxability of the gains on your property, and can be deducted off the gains at end of the year of the sale. Again, talk to your CPA to understand the impacts.
Do the Math
All sellers want to get top dollar for their property, and we want to help you get there. But in a challenging market, you may need to make some hard decisions. Take the time to understand exactly how much you can realistically expect to net from the sale (we can help you with this), as well as other tax and financial implications. Also consider what concessions you might be open to. For example, would you be willing to accept an offer that requests $30K back toward a mortgage paydown program, making the payments more accessible to the buyer?
Then, decide what your absolute minimum is — at what price will you net enough to cover your needs. Understand that this number is a moving target, depending on how much you will invest in the property prior to sale. Having a “buy me now” price can help you in negotiations if an interested buyer, especially one with a compelling offer, comes to the table.
So, even if you’re not ready to jump in the market either as a buyer or seller, it doesn’t mean you should sit idly by. Any of these tasks will help your position when the time comes.