If you’re a fellow Zillow doom-scroller, you’ve probably noticed that home prices rise over time. Sometimes the cost of housing skyrockets during economic booms or dips during downturns, but generally, home prices go up a few percentage points a year.
My husband and I had put off buying our “forever home” for some time, holding onto our smallish condo with the 2.75% mortgage rate we scored during the pandemic. Over the last few years, we’ve watched supply remain stagnant while property values continue their steady upward march.
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So when we found a single-family house exactly where we wanted to be in Massachusetts, we knew we had to jump on it.
I won’t lie. We love our new home, but we’re dealing with sticker shock. Even though we can probably refinance in the future, it was painful to give up our relatively cheap monthly payments just to get ahead of the competition.
Our situation isn’t unique. Tons of homebuyers are locked out of a challenging housing market due to tighter inventory, high prices and costly interest rates. Some of us feel the only way to adapt is to lock in a manageable housing payment before things get even more financially difficult. Here’s why we took the plunge.
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Understanding a competitive market
My family lives in a historic coastal town just north of Boston, known for its charm and stability. Because it’s relatively affordable compared to Boston, it’s also highly desirable among prospective homebuyers.
The increased competition for a smaller supply of available homes has pushed up costs. Listing prices increased by about 50% between 2020 and 2024, according to Redfin data, with homes receiving multiple offers and selling within a few weeks.
“It’s one of the more sought-after communities where we’ve seen the market take off and flourish,” said Bob Driscoll, director of residential lending at Rockland Trust.
This scenario is playing out across the US in multiple markets, where homeowners are staying put and refusing to give up their 3% rates. So even if you’re lucky enough to find a home for sale, get preapproved and feel comfortable with the mortgage rate, “you still have to deal with the extraordinary competition,” Driscoll said.
Getting ahead of home price jumps
When we started property shopping, I closely studied the local market. I knew prices were dropping a bit because sellers were overpricing their homes. We kept an eye on single-family houses in the area and noticed one beautiful property with a notable price drop.
The value of the condo we bought in 2020 was strong. After doing the calculations, we knew we could sell it and have enough to put 20% down on the house and cover the closing costs. This strategy allowed us to buy our dream house with a realistic mortgage payment.
Giving up the lower mortgage rate
Saying goodbye to our 2.75% interest rate was a hard pill to swallow, especially because those low rates are likely never to return. Homebuyers must accept that reality.
After using several popular methods to lower our rate, we ended up with 6.49% this time around. One of those methods was a temporary 2-1 buydown, meaning our payments are based on a lower rate for the first two years of the loan. We paid for the buydown using the proceeds from our condo sale.
This strategy doesn’t save us money, but it provides a forced savings account and a two-year ramp-up period during which we adjust to a higher mortgage payment. Our lender is offering a no-cost refinance that we can use whenever rates drop.
If I could redo our transaction, I would probably buy discount points for a permanent buydown instead of a temporary buydown. That’s because mortgage rates aren’t dropping as experts predicted they would.
“I would say rates will stabilize and sit somewhere in the 6% range in 2025,” Driscoll said. “We are not predicting any sort of massive rate drop.”
Budgeting costly monthly payments
Before making an offer on our new home, I did some research to calculate how our expenses and budget would change. The information helped me determine whether we could actually afford to live in our new house. (We could!)
Here are a few line items I planned for.
- A mortgage calculator helped me estimate our future principal and interest payments.
- Home insurance companies provided coverage quotes on the property we were eyeing.
- Property records helped us estimate our monthly real estate tax bill and water/sewer bill.
- The utility company provided average monthly electric and gas rates at the new address.
- Our car insurance company told us about rate changes based on our new address.
After the offer was accepted, we ordered a home inspection, which also helped us budget for future maintenance costs.
When homebuying makes sense
It’s challenging to buy a home right now. Prices are high, and so are mortgage rates. But it’s still worth evaluating if it’s the right decision for you.
Certain steps can assist you through the process. Getting a preapproval, for instance, can help you create a housing budget. This step also strengthens your position in a competitive market because the seller knows you already have a lender onboard.
Consider what you feel comfortable paying each month, and try not to focus too much on the mortgage rate.
“If you love the home, you can afford it and you qualify for it, deal with the rate,” Driscoll said. “You have control of that as time progresses.”
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