Rising interest rates and high inflation are creating major challenges for home affordability. Despite these obstacles, buying a home now may still be the right choice for some people. Here are some tips to consider when deciding whether to buy a home in an environment with rising interest rates and inflation.

Carefully Consider Whether Buying a Home is Right for You

Homeownership conveys many important benefits. Owning a home is more stable than renting, and homeowners can lock in their monthly mortgage payment with a fixed-rate mortgage instead of contending with rising rents over time. Homeowners build wealth as they pay down their mortgage and build equity in their home. Additionally, home prices tend to increase over time—in fact, home prices rising over time, also known as home price appreciation, is one of the primary drivers of wealth creation in the United States.¹

It makes sense to want to own a home to reap these benefits, but it is important to thoroughly assess your financial situation and feel comfortable making the move to homeownership. Some people jump into the housing market before they are ready because they are nervous about prices or rates increasing, or they try to “time the market” and purchase a home just to sell it for more money later. We recommend being patient and assessing your finances and your reasons for purchasing a home before deciding to buy. For more information and resources to help you assess whether now is a good time to buy, check out https://www.cambridgesavings.com/right-time.

Make a List of Wants, Needs, and Dealbreakers, and Research Different Towns and Cities

What do you love about where you currently live? What would you change if you could? Questions like these will help you create a list of wants, needs, and dealbreakers for your home. Once you have a working list of wants and needs, research towns and cities where you may want to live. Websites like Livability and Neighborhood Scout can help you find information about a city’s neighborhoods, demographics, schools, and more. The Massachusetts Association of Realtors’ website also has a market data page to help you learn more about real estate trends across Massachusetts. Deciding on what type of home to buy may be a long process, especially in a high-inflation environment. Do not be afraid to revisit your list after you have a credit approval in-hand and have done more research on home prices in your target market.

Understand How Lenders Assess Your Application

When assessing your mortgage application, lenders will look at your income, assets, liabilities, and credit profile. Your credit profile includes your credit score, as well as things like recent applications for credit, your payment history on credit loans and lines of credit, and credit utilization, or what percentage of available credit you are using. There are several actions you can take that may improve your credit score and strengthen your application in the eyes of a lender. To learn more about using and building credit, check out this article.

Get A Credit Approval Letter

Getting a pre-qualification or credit approval letter is a great place to start if you are looking to understand how much home you may be able to afford. To get your credit approval letter, simply answer a few questions about your assets, liabilities, and income; and provide consent for a credit check. At CSB, we run your information through an automated underwriting system and provide a letter stating how much you may be qualified to borrow based on the information you provided. Click here to start your credit approval with CSB.

Learn About Different Loan Options and Grants

Affordable Loan Options and Grants

Affordable loan programs may offer below-market interest rates, low or no down payments, and other benefits to borrowers who qualify. These programs are sometimes called “first-time buyer programs” because applicants are often first-time buyers, but some affordable programs are also available to repeat homeowners. Many affordable loan programs are only available to applicants whose income is below a specific threshold. Others do not have income restrictions but are available only to borrowers who are buying a property in certain towns and cities within Massachusetts. To learn more about affordable loan options, check out our affordable options page or reach out to a loan officer.

Some state and local housing organizations also offer grants to first-time buyers. For example, MassHousing and Massachusetts Housing Partnership (MHP) launched a new program in September 2022 called MassDREAMS, which provides down payment and closing cost grants to first-time homebuyers who currently live in communities that were disproportionately impacted by the COVID-19 pandemic and meet other eligibility criteria. To learn more about this and other grant programs, please visit our affordable options page.

Adjustable Rate Mortgages

At a high level, borrowers have two primary mortgage options: fixed rate and variable, or adjustable rate mortgages. A fixed rate mortgage has a predetermined, or fixed rate throughout the life of the loan. With an adjustable rate mortgage, the interest rate and monthly payment stay the same for an introductory period—usually 5 to 10 years. During that introductory period, your interest rate and payments may be lower than what you would get with a fixed rate mortgage. After the introductory period ends, the rate will move up or down per the terms of the loan as interest rates fluctuate. Adjustable rate mortgages may save borrowers money compared to what they would pay with a fixed rate mortgage if they plan to sell their home or refinance at a lower rate within the fixed period—the first 5 to 10 years of owning a home. To learn more about fixed and adjustable rate mortgages and the types of loans may suit your needs, reach out to a CSB loan officer.

Conclusion

No matter when you choose to buy a home, you should carefully consider your financial situation and reasons for buying a home before entering the market, research the application process and types of loans available, and choose a reputable and experienced lender to guide you through the process. At Cambridge Savings Bank, we take pride in providing guidance based on the unique situation of every customer. Check out our website and remember that we’re always happy to answer more specific questions about buying a home.

¹https://www.boston.com/real-estate/home-buying/2022/03/11/greater-boston-lost-145000-low-middle-income-homeowners-2010-2020/