Everyone knows that real estate’s Golden Rule is “Location, location, location.”
Another concept growing in popularity among homebuyers is “Date the rate, marry the home” — which we’ll explain in this blog post to help you determine if it’s right for you.
What it is
Essentially, this philosophy means that a new homebuyer should:
- “Date” their mortgage loan interest rate until they part ways (via refinance)
- “Marry” the home that has all the features they want
How it works
This home buying strategy can work because you buy the home you want at today’s prices — before values continue to rise. Then later on, you can refinance your interest rate when it makes sense.
While the initial interest rate may not be ideal, the long-term benefits of buying your new dream home can outweigh the short-term downside of a higher rate. You’ll be the proud owner of a property with all the features that matter to you, and if historical trends continue, your home value will increase over the years.
When the time is right for you, you can then refinance your mortgage loan — cashing out some of your home equity and reducing your monthly payment, thanks to a lower rate.
Things to consider
It’s usually recommended to employ this home buying strategy when interest rates are high, because during those times homes tend to be less expensive overall. You do need to think about these factors:
- Budget = Make sure you can afford your monthly payments with a higher interest rate.
- Refinancing = Remember that refinancing isn’t guaranteed, and you may need to meet certain loan requirements.
- Length of ownership = It’s best to plan on staying in your new home long enough to save for refinancing fees.
It’s important to monitor interest rates, since they can change daily or even multiple times a day. This variability means you should have opportunities in the future to refinance and get a lower interest rate (and of course, lower payments).
Is this strategy right for you?
To determine if “Date the rate, marry the home” is a good idea for you right now, it’s important to ask yourself:
- Is the home you’re looking at your dream home (or as close as it gets)?
- Are you in a comfortable financial position?
- Can you afford the mortgage payment as is, for the foreseeable future?
- Are you OK with some risk?
That last question is key because there is some risk in banking on your future home value and on mortgage rates. You’ll need the right time and conditions to refinance:
- Your house value has to be higher than the amount you owe on your mortgage.
- Your debt-to-income ratio has to be aligned with the refinance loan parameters that you choose.
Still have questions? Contact one of our preferred lenders to see if “Date the rate, marry the home” is the right way to go.
And if you’re looking for your new dream home, take a look at Schaefer Homes’ new models.