Buying a Home in a High-Interest Environment

by | Sep 16, 2022

It’s no secret that we’re living in some interesting financial times. We’ve had a lot of unexpected things happen over the last couple of years, and the market (as of August 2022) reflects all those changes.

One experience that has definitely shifted within the financial flurry of the times is…buying a home. I have a number of clients who have recently either bought a home or have begun the process of buying one. You might be hearing a lot of whispers about what a bad home-buying market we’re currently in, and I’ll be honest: This high-interest environment definitely isn’t ideal. But you shouldn’t let that scare you away from your dream home.

This is why I want to walk you through different factors to consider before and during buying a home in our current financial environment. 

Know your numbers

Knowing how much you can afford before you decide to start looking to buy a home seems like an obvious first step, but there are a few particulars to consider that might get overlooked when dealing with the big picture of your finances:

  • Know how much you can afford in terms of your monthly payment. What fits comfortably within your budget? Do you have your budget fixed first
  • Know your larger financial picture. Don’t get totally caught up in it, but calculate how much you’re putting into your down payment. This is how you avoid a situation where you become “house poor.”
  • Look at your emergency fund. As a financial planner, I’d always rather see less money in a down payment and more in an emergency fund. You can’t predict what your home expenses (or emergency repairs) will look like. 

Consider the financial environment

This current rising interest rate environment will likely change what your mortgage rate is, and in order to really have a firm understanding of what you can afford you need to have your mortgage rate set. 

You’ll want to have answers to questions like: 

  • What is your price range (including total cost of a home AND monthly payments)? 
  • What is a number that you are not willing to go above?

You need to be clear with what you’re able to do and what you’re not able to do. A good practice I recommend is to write all of this information down before meeting with a realtor or a mortgage broker, who might try to tell you that you can afford a lot more than you’re comfortable with.

Realizing your wants and needs 

Home buying, while sometimes financially stressful, should also be an exciting time in your life! Ask yourself what you want in a home, without considering the financial aspects of those wants, isn’t something to feel bad about. 

I’m passionate about my clients (and myself!) spending your money in a way that aligns with your values and what’s most important to you. I want the things you spend your money on to bring you joy, and a home may be the biggest thing you ever spend your money on, so it should be bringing you the most happiness! 

Here’s a personal example: every time I make my monthly mortgage payment, I feel grateful. 

Grateful that I get to live in a home that I love. Grateful that I can afford the things that make me feel happy. Grateful that I can provide that same feeling to my family. 

You can absolutely be grateful for the biggest investment of your life – as long as you know what you want in a home. Make a list of those non-negotiable things that you’re looking for in a home and just think how, in 5-7 years from now, you’ll be so glad you made the leap.

Be ready to act 

If you’re already looking for a home, you should know the initial important things that you’ll need, like knowing your numbers and having your list of non-negotiables.  

Something else important to remember: As interest rates go up, your buying power goes down. That means that you can afford less from a monthly payment standpoint, which is why knowing what your interest rate is so important when going into the process.

The other piece of this is knowing where your down payment money is. 

Is it in the stock market, which is currently falling? If it is, should you remove it?  

Is your cash readily accessible at a moment’s notice? 

These are the things that you need to ask yourself and make sure of to prepare yourself in order to act, and act fast. In this market you need to move quickly and put that offer down as soon as possible — or else that dream home might just become someone else’s. 

What to do if you’re ready to buy a home

💭 Yes, interest rates are climbing, there’s no denying it, but if we look at them historically were still at a low point. Don’t be scared of the real estate market. 

When looking at your financial picture, don’t use a six-month perspective, think more of a 30-40 year picture. If you’re making your decisions based on all the factors I’ve talked about already, then your big picture remains unscathed. So, my best advice? ZOOM out! 

✅ Something to do now: I encourage you to take a piece of paper and write down all the information that you will need ahead of time when buying a home, things like:

  • What you want in a home
  • What your interest rate is
  • Where your down payment is
  • Where you want to be in 5-7 years, even neighborhood demographics and any other intangible pieces 

It’s an important first step into the process, and one you’ll be glad you have when the buying process gets “real.”

Thanks for tuning in!

Thank you so much for checking out this episode of Everyday Money with Hannah Moore. I look forward to sharing more tips and important information about how our current financial environment changes the home-buying game! 

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