There are strategies you can take to reduce the stress of buying a home when inflation is rising. During challenging markets – and housing markets during times of inflation certainly qualify – it's important to study the sales prices that homes are fetching in the neighborhoods you’re interested in. This will tell you where you can afford to move. If you can afford to spend $285,000 on a house and homes are selling for $325,000 or more in a community, you can cross that area off your home-shopping list. To get a deeper view of specific markets, work with a real estate agent. An agent can give you a list of recently sold homes so that you can see how much buyers are paying in the areas in which you want to buy.Research Market Trends
Reassess Your Housing Budget
During times of inflation, it’s important to know exactly how much home you can afford. To do this, create a household budget that lists your expenses and monthly income. This will tell you how much you can afford on a monthly mortgage payment.
During times of inflation, it’s wise to take on a monthly mortgage payment that comes in under the maximum amount you can afford. Inflation increases the costs of other items, such as gas, food, clothing and electronics. This boosts your cost of living. It’s best to leave extra room in your budget by not buying the home that will push your mortgage payments to the maximum amount you can afford each month.
Be realistic, too, when hunting for a home. Rising inflation can lower how much house you can afford. When the prices of homes rise, you’ll need to spend more on a down payment and on the closing costs that mortgage lenders charge to originate your home loan.
Expand Your Preferred Location And Home Type
When housing prices are rising, you might need to expand the number of communities in which you are willing to buy. You might find that you can afford more home, even at rising prices, in a community that is 10 miles away from your preferred neighborhood. Investigating these areas of lower housing prices might help you make the move to homeownership without breaking your budget.
You might also widen the types of homes you are willing to buy. For instance, buying a fixer-upper that needs repairs or maintenance might allow you to get into your preferred neighborhood at a lower price. You might also consider alternatives to single-family homes such as townhouses or condos that typically come with lower price tags.
Increase Your Credit Score And Down Payment
You can boost your odds of qualifying for a lower mortgage interest rate by repairing your credit score. This three-digit number provides a snapshot of how well you’ve paid your bills and handled your credit. The higher your score, the more likely you are to qualify for a lower interest rate with your mortgage. Most lenders consider a FICO® credit score of 800 or better to be an excellent one.
To get to that level, pay all your bills on time each month and pay down as much of your credit card debt as you can. Taking these two steps can boost your credit score over time.
You can lower your mortgage interest rate by coming up with a larger down payment, too. The larger your down payment, the lower the rate lenders are apt to charge you. That’s because you already have more invested in your home when you provide a larger down payment. Lenders think you are less likely to skip your monthly mortgage payments if you’ve already put down more of your money upfront.
Buy Sooner Rather Than Later
If you buy a home now, you can lock in an interest rate at today’s prices. While rates might be higher now than what they were several months ago, today’s rates might also be lower than what they will be in the future, especially if inflation keeps rising. If you are ready to buy, then, acting quickly can leave you with a lower housing price and mortgage interest rate.
Consider Other Mortgage Types
Different mortgage types might also help you save money during inflationary times. An adjustable-rate mortgage (ARM) might be a better choice over a traditional fixed-rate mortgage, today.
With an ARM, you’ll get a lower-than-market-rate interest rate for a fixed period, often 5 or 7 years. During this fixed period, you’ll pay less each month than you would with a fixed-rate loan because of this lower rate.
After the fixed period ends, your interest rate will adjust according to the economic index your mortgage loan is tied to (for example, SOFR). Usually, this means that your rate, and monthly payment, rises after the fixed period ends. Make sure, then, that you can afford this higher monthly payment. Many homeowners refinance out of an ARM before the fixed period ends, but you should be prepared for a higher rate if you can’t do this.
