“Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world.”
– Franklin D. Roosevelt
Here are the median sales prices for houses sold in the United States over recent decades:
- 1980: $64,000
- 1990: $117,000
- 2000: $173,000
- 2010: $223,000
- 2020: $338,000
Don’t mistake those figures for proof that homeownership is a ticket to riches. Because of inflation, prices in 2023 are 3.7 times higher than they were in 1980. A homeowner also has different expenses than a renter: fun things, like maintenance, repairs, insurance and property taxes.
But a homeowner does what a renter cannot. They build equity every time they make a mortgage payment, and in 30 years they fully own the most useful thing in the world: a house. In contrast, the average American renter currently pays $1,702 every month (while the national rent average increases 4% every year). Regardless of how much they spend on rent, a renter will always wind up owning just as much of the property. (Specifically, none of it.)
Is It Safe to Buy a Home When Mortgage Rates Are High?
You want the security, financial stability, tax benefits and sense of community you can only gain through homeownership. Unfortunately, you want them at a time when mortgage rates are rising.
But are mortgage rates actually high? Arguably not, if you look at it historically. Consider the average 30-year fixed rate mortgage in the United States over the past few decades:
- 1980: 16.35%
- 1990: 10.22%
- 2000: 8.28%
- 2010: 5.06%
- 2020: 2.84%
- July 19th, 2023: 6.88%
As you can see, the current mortgage rate of ~7% is still relatively low compared to historically high interest rates – and the return of sub-3% mortgage rates is not expected again in our lifetimes. Once you factor in the amount of money you would have to spend on rent while waiting for a lower mortgage rate to arrive, the case for buying a home as soon as you’re financially ready only becomes stronger.
How to Buy a Home in a Higher Interest Environment
If you are a homebuyer, then you have several techniques to land better deals when mortgage rates are higher:
- You can request a rate buydown, in which the seller or builder pays a portion of their sale proceeds to the lender in exchange for a lower interest rate.
- You can buy mortgage points – essentially paying an upfront fee for a permanently lower rate.
- You can search for the lowest available rate by speaking with multiple different lenders, and use your negotiation skills while you’re at it.
- You can buy all of the seller’s existing home equity and take over their mortgage, complete with its lower rate.
- You can make a larger down payment – which, like taking over an existing mortgage, requires a lot of capital.
Rural Development’s Single Family Housing Programs
Are you specifically looking to purchase a home in rural America? Then you may have yet another powerful tool for securing a low interest rate at your disposal: the USDA’s Rural Development Single Family Housing Programs.
These loans are available to Americans who want to buy, build or repair an affordable home in rural America. So long as your family has a moderate, low, or very low income – and you are moving to a qualifying address – a Rural Development loan program can help you purchase or build your own home with zero money down.
Food for thought, if you want to buy a home in Central Minnesota.
And if you are looking for a home in our neck of the woods, then we welcome you to contact Sherburne State Bank or visit one of our locations in Becker, Monticello or Princeton, MN today. We are a local mortgage lender that takes great pride in our community. We’re standing by to simplify your home loan process so we can call you our neighbor!