Save Your Money And Buy A Home When The Real Estate Market Cools
You can better prepare to buy a home while you wait for the real estate market to cool.
gettyWaiting for the real estate market to cool down before buying a home? There are ways to stay financially prepared.
I moved to Charlotte, North Carolina from New York City, almost a decade ago for one primary reason — home affordability. Since then, I've bought two and sold two homes in Charlotte, and went back to renting while I wait to make my next home purchase. Except now feels like the worst time to be a home buyer since Charlotte was dubbed 2023's hottest real estate market by Zillow.
The National Association of Realtors reported the U.S. median existing home price fell 12.3% from the record high of $413,800 in June 2022 to $363,000 in February. It's a sign that the market is cooling, but far from feeling affordable for most locals. Instead of rushing to buy an overvalued asset, here are five smarter ways to financially prepare for a better long-term investment.
Visit At Least 3 Open Houses A MonthMy husband and I enjoy visiting open houses for fun on the weekends, playing our own little version of those home shows on television. Even if we're not actively looking, we go to a few open houses each month to get the latest pulse of what's happening in our local real estate markets and notice the trends you won't learn from just browsing online listings.
People often fail to start looking at homes until they're in a time crunch to buy, and they end up with buyer's remorse. Going to open houses on your own, even when you're not ready to buy, allows you to research without the pressure of visiting with a real estate agent. As you start seeing more and more homes at various times of the year, you'll start noticing seasonal patterns such as traffic and maintenance costs.
The second home I bought in Charlotte eventually sold for double its original purchase price. It was a surprise find, thanks to seeing it during an open house. Had we stuck to neighborhood's we thought we wanted to live in, we never would have found it. The layout was also different than others we had seen before, so we were surprised to see how much we liked it. Open houses are a great way to explore the hidden gem neighborhood's and different home styles you might otherwise miss.
Learn How Much Interest You Can Save With A Mortgage CalculatorMany home buyers know to get prequalified for a mortgage before buying. But they often interpret that pre-qualification number as their budget, buying at the top of their price range.
Before establishing the top of your range as your price point, use a mortgage calculator to understand how changes in these four variables can not only lower your monthly payment, but can save you thousands of dollars in interest:
For example, a home bought today at the median price of $363,000 with a 20% down payment and a 7% interest rate would cost an additional $405,133 in interest over the life of 30-year loan. Using the calculator to test out different loan terms, a 15-year mortgage would decrease the total interest to $179,435. Learning to look at the whole picture, and not just the monthly payments, can save you hundreds of thousands of dollars, and motivate you to save up more for your down payment, lower your purchase price or finance for fewer years in your loan term.
Pay Off Your Credit Card DebtBecoming a homeowner costs more than just your monthly mortgage payment and insurance. The cost of buying furniture, ongoing maintenance like cleaning and lawn care and the unexpected repairs are not top of mind when you are just thinking about buying the home.
American consumer credit hit a record high $4.82 trillion in February, according to a new report from the Federal Reserve. I've personally coached hundreds of people who became homeowners prematurely, allowing credit card bills to run up even though they thought buying a home over renting would save them money.
But with average credit card interest rates near 24.20%, owning a home can feel like more of a burden than a blessing if you can't lower your debt. If you're carrying any balances on your credit cards, it's hard to wait until you've cleared them before buying your next home. But it's worth the mental stability and it also will help you build great financial habits to prepare for homeownership.
Increase Your Down Payment Passively With Today's High Interest RatesAfter seeing current home prices in my real estate market, I decided to put off buying a home this year and continue renting until 2024. That means the down payment I have waiting can earn some extra money for me thanks to the higher interest rates on high-yield savings accounts and certificates of deposits. These accounts are paying up to 5% interest and offer peace of mind to let your money grow rather than letting them sit in other riskier investments.
If you're not planning to buy a home for at least 10 months, consider CDs as a place to stash your down payment, as they offer higher interest rates with the tradeoff of having your money locked away for that term. I would not recommend putting your regular emergency fund in here, but it's a great place for your down payment and removes the temptation of spending it elsewhere while waiting for the housing market to cool.
Practice Patience With Yourself And Your Real Estate AgentIf you've been wanting to buy a home for some time, I can relate to your frustration over the current housing market's lack of affordability. I, too, get caught up in the hype real estate agents create with statements like, "Marry the house, date the rate" to buy now rather than later.
Remind yourself and your real estate agent that this is a one-time sale for them, but a long-term lifestyle choice for you. Build a relationship with a person who won't pressure you but will respect your financial boundaries. The best agents I've worked with are the ones who still sent me listings and stayed in touch, even when I wasn't ready just yet.
Buying a home isn't a decision to take lightly. Delaying the purchase until you're financially prepared can not only make this the biggest decision you'll ever make, but also the wisest investment you can ever make into financial independence.
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