If you’re looking to buy a home in the current market, you might have come to the realization that things are tough. Interest rates are high, and so are home values in Salt Lake City. This makes for higher monthly mortgage payments than seen in previous years.
But, as our principal broker and real estate investor Monique often says, it’s “time in the market” not “timing the market”. Basically, this means if you're ready to invest and you have the means to do so, don't wait for the perfect time to dive in. The longer you wait, the more time building equity (and potential returns) you lose. If you’re in a good position to buy, we are here to help you navigate the current climate. Here are three creative ways to buy a house, and save a bit on your monthly payment.
Talk with Your Lender and Your Agent About a Temporary Rate Buydown
A temporary rate buydown is a financial strategy used in home financing to temporarily reduce the initial interest rate on a mortgage, making monthly payments more affordable for the borrower, especially in the early years of the loan. This rate reduction is achieved by paying extra fees upfront, either by the borrower, the home seller, or a builder. For example, in a 2-1 rate buydown, the interest rate is lowered by 2% in the first year and 1% in the second year, before returning to the original rate for the rest of the mortgage term. While it can make homeownership more accessible at the start, it's crucial to weigh the upfront costs against the long-term benefits to determine if it's the right choice for your financial situation.
You can ask a home seller for a temporary or permanent rate buydown, but whether they are willing to agree to it will depend on various factors, including the real estate market conditions, the seller's motivation, and the terms of your offer. A rate buydown can be an attractive incentive for a buyer, but it also represents a cost to the seller, as they may need to contribute financially to lower your mortgage interest rate. It's essential to discuss this with your real estate agent and include it as a part of your negotiation when making an offer on a property. Keep in mind that sellers may be more or less willing to consider such requests depending on the specific circumstances of the sale.
"In our current market, it isn't uncommon for sellers to offer concessions to help buyers with home repairs, closing costs, or rate buy downs. Using a seller concession toward a permanent rate buy down is a fantastic option for buyers in our current interest rate environment. It allows you to secure a lower interest rate on your mortgage, resulting in reduced monthly payments and long-term savings, making homeownership more affordable and financially advantageous."
- Jenni Holmstead
Consider Buying a Home with a Friend
You might not be able to swing first time home ownership on your own, but you may be able to with a friend. This is commonly referred to as "co-ownership." Co-owning a home with a friend can have several advantages, including sharing the costs and responsibilities of homeownership.
Here are a few things to consider when moving into home co-ownership:
1. Legal Agreement: It's crucial to create a legally binding agreement that outlines each person's rights, responsibilities, and financial contributions. This agreement should address potential scenarios like selling the property, one friend wanting to move out, or other unexpected situations.
2. Financing: Decide how you'll handle the financing. You can either apply for a mortgage together or have one person secure the mortgage, with the other contributing to the down payment or ongoing expenses.
3. Ownership Structure: Determine how you want to structure ownership. You can own the property as joint tenants, where both have an equal share, or as tenants in common, where ownership percentages can be different.
4. Financial Contributions: Be clear on how you'll split the costs, including the mortgage, property taxes, maintenance, and repairs.
5. Exit Strategy: Plan for the future. What happens if one of you wants to sell or buy out the other? Having a clear exit strategy in your agreement is crucial.
6. Legal and Tax Advice: Consult with a real estate attorney and potentially a tax professional to ensure that your arrangement complies with local laws and to understand the tax implications.
Co-owning a home with a friend can be a successful arrangement, but it's important to address all the details in a formal agreement to avoid potential conflicts and misunderstandings down the road. Additionally, it's essential to choose your co-owner carefully and communicate openly to make the arrangement work.
"I am seeing more and more people team up to purchase their first home together. It's a great way to distribute the cost of owning a home and make it more accessible. You can also turn it into a rental if and when you're ready to upgrade, making it a great way to build your real estate investing portfolio."
- Monique Higginson
Consider House Hacking
House hacking is a real estate investment strategy in which you live in one of the units of a multifamily property, such as a duplex, triplex, or fourplex, while renting out the other units. The idea behind house hacking is to use rental income from the additional units to offset, or even completely cover, your own housing expenses, including your mortgage, property taxes, and maintenance costs. This strategy can be an effective way to reduce the financial burden of homeownership and potentially build wealth through real estate. House hacking is often used by first-time real estate investors to get into the real estate market and start building a rental property portfolio while enjoying the benefits of reduced living expenses. It can be a smart financial move if you're willing to manage tenants and property maintenance in exchange for the cost savings and potential rental income.
Not sure if you have what it takes to be a landlord? Take our free 30-minute course to get a sense of what’s involved. The link is below.
"House-hacking is a brilliant strategy for both acquiring wealth and securing housing. Buyers who purchase multi-unit properties can live in one unit while renting out the others. This way, they can cover their individual living costs, pay down the mortgage on the full property, and hopefully, gain greater appreciation on a larger investment than they would if they’d purchased a single-family home."
Katie Ferriello
