Seattle Real Estate News The Mortgage Strategy We Are Sharing With Our Seattle & Bellevue Clients Right Now
- Matt Miner,
- December 23, 2022
Many would-be home buyers in the Seattle and Bellevue areas have put their home searches on pause due to the recent rise in interest rates and inflation. I share more about this in our recent blog post “December 2022 Seattle Real Estate Market Update & My Predictions for 2023.”
However, if you are thinking that you would like to buy a home soon, there are a couple of home loan strategies that you need to know about!
We think that inflation is probably going to drop significantly by March or April 2023.Because of this, we also think that it does not make sense to do a 30-year fixed loan if you buy a house right now. Here is what you SHOULD do:
Get a short-term Adjustable Rate Mortgage (ARM). Basically, this is a type of home loan where your interest rate is fixed for a certain amount of time. After this, your interest rate can fluctuate based on the market. The strategy behind this is that in 5-7 years, interest rates will likely have come down to the new normal. Then, you can refinance when you think it’s advantageous. But you will also probably have bought the house at its cheapest point.
Keep in mind that the “cheapest point” will be anytime between now (December 2022) and April 2023. You just want to beat the crowds—once you start realizing that rates are lower and home prices will start going back up, everyone else will be having the same realization. I anticipate home prices will start to go back up in late 2023 or early 2024, when markets start significantly increasing.
Another home loan option is a 3-2-1 Buydown. The interest rate can be “bought down” by paying more money upfront, and sellers may even pay for this as part of your deal. As a result, your loan will start out with a low interest rate. From here, the interest rate is lowered by 3% your first year, 2% your second year, 1% your third year, and then the loan will reset to the permanent interest rate.
In my opinion, I think it’s easier to just do an ARM and refinance down the road. But everyone’s situation is a little different, and I can help you weigh the pros and cons.
The way I see it, there are 3 different buyers right now. The first type of buyer is paying very close attention to the real estate market at the moment. They are probably going to buy in February to April 2023 and be ahead of the curve.
After spring, the second group of buyers—let’s call them “middle buyers”—will enter the market. These middle buyers are more cautious, but they will see that the market is changing. By this point, the homes that these buyers want are going to cost more.
And then the third type of buyer will emerge when they feel it’s “safe” to buy a home, and they’ll be a bit behind the curve.
Right now, I am advising my clients to think in the short term. Get your monthly payment down as low as possible while you can, and refinance your home later down the line.