As you go through the process of buying a house, you’ll come to realize that there are a variety of different factors that make up a given home’s level of affordability; it’s not just asking price, but also interest rate, taxes, cost to maintain the home and any other expenses associated with purchasing and living in the house.
While a home might be within your price range at first glance, these additional factors could actually push it out of the range of what’s affordable for you. This is especially true when it comes to your mortgage interest rate.
How exactly do home prices and mortgage rates interact, and is one of these factors more influential than the other? Let’s take a look at what home buyers should know.
Advantages Of Lower House Prices
Most hopeful home buyers dream of low prices – but what if that means taking on a higher interest rate? Which is preferable?
The immediate advantage of buying a home on the lower end of your price range is that you won’t need to bring as much cash to the table for your down payment.
If homes are more affordable because interest rates are high, buying a lower-priced home could work to your advantage in the long run if you think rates will eventually go down. Once mortgage rates drop, you may have the option to refinance into a new loan at the lower rate.
Advantages Of Lower Interest Rates
Of course, having a low interest rate right out of the gate is likely going to be better for you than having to wait for rates to drop and then go through the refinance process. But is a lower interest rate worth a higher price tag?
In addition to lowering the amount of money you’ll pay to borrow the mortgage, low interest rates can give a small boost to your buying power, since a smaller portion of your monthly payment will put toward interest. This can mean being able to afford a little bit more house than you might in a higher rate environment.
Ultimately, the best time to buy a house is when you feel you’re ready to do so.
Though there are benefits to both low rate and low price environments, it’s hard to time the market to your advantage. Doing so could potentially mean buying before you’re ready or waiting too long and missing out on a great opportunity.
Keep an eye on rates and prices, but also work on readying your finances for homeownership: saving for a down payment, building up your credit score and paying down any debt you owe.