Should You Get A Mortgage Now And Refinance Later? An Expert Weighs In
For many people, the dream of owning a home is a powerful one, but there's much to consider, especially with the current shift in the housing marketplace. As noted by Forbes, interest rates — which are one of the primary factors in how affordable home buying is — have risen to 6.65% as of January of 2023, which is double what they were a year prior at 3.22%. While home prices could fall in the future, they are high now. For some, the idea of buying a home with a higher interest rate and refinancing it later sounds like a plan, but is it a good one?
Money expert Andrew Lokenauth, founder of Fluent in Finance, shared his insight into this process in an exclusive interview with House Digest. He warns that "taking out a mortgage is a significant financial commitment, and it's not a decision that should be made lightly." For those who are ready to commit, he explains that "before you even begin the process of looking for a mortgage, it's important to make sure that you are financially stable and capable of paying the mortgage payments. This means that you should have a steady income and a good credit score, as well as a solid savings and investment portfolio."
Who should and shouldn't get a mortgage now
The desire to buy a home can be strong, but it's essential to consider your financials carefully, shares Lokenauth. "If you have a stable income, a good credit score, and a strong debt-to-income ratio, you may be well-positioned to take advantage of the decrease in home prices," he suggests. Some experts believe home prices should soon begin to fall, and Lokenauth also notes that changes that occur in the coming months or years will determine what consumers should do next. "Ideally, as rates drop in the future, you can refinance to lower your mortgage payments with a lower rate. The Fed plans to lower rates next year, and if the economy continues performing poorly, interest rates may decline sooner to stimulate the economy back up," he states.
Still, not everyone is in this place right now, for which Lokenauth states, "If you're not financially stable and capable of paying the mortgage payments, it's probably not a good idea to take out a mortgage now." It may be wise to speak to a financial advisor about improving your situation now in preparation for improved conditions later.
What if you find your dream home?
Perhaps that home that you've always wanted to own comes on the market, or the property that's next to your best friend is suddenly listed for sale. Should you buy it now? Lokenauth states, "If your dream house is for sale and the mortgage rates are high, the first thing to do is to check if there are any government programs such as FHA or VA loan that will help you with the rates." These loan programs have special requirements, such as being a first-time home buyer or a member of the U.S. Armed Services, but offer lucrative benefits to those that qualify. Ask your mortgage lender about availability.
If those opportunities are available, you may wish to pursue purchasing the home using those loans if it works for your financial situation. "If not, it might be best to wait until the rates come down before buying the house or consider other financing options," shares Lokenauth. That may be hard to do, but in the long term, the higher cost of current homes and rates may not be worth even what you think is a dream home.