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Home-buying strategies in a changing market

Despite current challenges, the right tools can enable buyers to land a property

Alexandra Lewis and her fiance, Kevin Cawley, were looking to buy a home in Montgomery County. But houses in their price range were either too small or needed too much work. This four-bedroom, two-bathroom house in Hyattsville, Md., was more what they were looking for. (Craig Hudson for The Washington Post)

In December, Alexandra Lewis and her fiance, Kevin Cawley, learned the rent on their apartment in Alexandria, Va., would jump from $1,900 to $2,300 a month in February. That was simply too high, said Lewis, a caseworker. The rent hike prompted her and Cawley, a D.C. government employee, to explore buying a house.

Although she expected mortgage rates to be in the 2 percent range — a friend had obtained a mortgage around that rate in the early days of the pandemic — Lewis was shocked at how high rates had risen.

“I think the market was just going up and down and we ended up locking on a day where it was at 4.6 percent, unfortunately,” said Lewis, 26.

Lewis may have been disappointed at 4.6 percent but rates have continued to move higher. The latest survey by Freddie Mac puts the average for a 30-year fixed-rate mortgage at 6.02 percent. Rates are still below the historical average of 7.8 percent, according to Freddie Mac.

Higher mortgage rates and home prices have put affordability at its lowest point since 1989, according to the National Association of Realtors (NAR). Home prices remain elevated but have started to decline. The Case-Schiller index for June showed prices were up 18 percent year-over-year, but that was down from 19.9 percent in May. Lawrence Yun, chief economist of NAR, has declared the housing market is in a recession in terms of declining sales and building.

All of that makes finding a home more challenging for first-time buyers — but not impossible. Lewis and Cawley had savings and good credit going for them. Plus, they compromised on a second-choice location where their dollars stretched further. They also tapped into additional funds through a first-time home buyer program.

Housing hot spots at risk of recession price drops

“The concept of affordable housing is one that feels like a huge challenge for prospective buyers these days,” said Mark Hamrick, senior economic analyst for

Mortgage bankers and real estate agents advise clients that just because you can afford a house doesn’t mean you should spend that much.

“I try to counsel clients not to be house poor,” said Wendy Banner, an associate broker with Long & Foster in Bethesda, Md. “Pay raises are not automatic. People are more reluctant to buy into what they may be making in the future.”

Banner suggests setting a budget based on what a buyer is comfortable spending each month on housing.

“Monthly mortgage payments for a typical U.S. home have risen by more than $400 since January. Those seriously considering buying are being forced to carefully examine their budgets,” said Jonathan Lee, vice president of Zillow Home Loans.

Here are some strategies buyers can use:

  • Make a list of must-haves and want-to-haves. “You’re never going to get 100 percent of what you want,” said Tania Tinsley Little, a broker with eXp Realty in Raleigh, N.C. “Aim to get 65 percent to 70 percent of what you want.”
  • Improve your credit scores. A better score can reduce the cost of borrowing money. “Check your credit score before you start,” said Hamrick.

Housing market heads back to 2019

  • Meet with more than one lender. “Talk to a lender first,” said Susan Sonnesyn Brooks, a D.C.-based agent with Weichert Realtors, who represented Lewis and Cawley. “Before you go see this house, see if you’re qualified.” Lewis and Cawley prequalified with a lender before looking at homes. Although they were prequalified for a $500,000 mortgage, they limited their search to properties listed up to $420,000. “We didn’t want to go to the max,” said Lewis.

Joel Kan, an economist with the MBA, suggests getting your documentation in order, such as tax returns, income statements, bank statements and pay stubs. “Get everything you need to close on that loan,” he said.

  • Check how long a home has been on the market. Overpriced houses tend to sit on the market longer. The longer a home lingers on the market the more likely a seller may be willing to entertain a price cut. “Days on the market have gotten a little longer,” Little said.
  • Adjust your expectations. Lewis and Cawley were looking to buy a home in Montgomery County. But houses in their price range — up to $500,000 — were either too small or needed too much work. A four-bedroom, two-bathroom house on the market for $382,000 in Hyattsville, Md., a city in Prince George’s County, was more what they were looking for, even if the location wasn’t. “It kind of looked like my childhood home, two stories on a hill,” said Lewis. “It pulled my heartstrings.”
  • Check out first-time home buyer programs. The lender Lewis and Cawley used, Movement Mortgage, told them about a Maryland Mortgage Program called Flex 3 Percent Loan, which comes with a down-payment assistance loan equal to 3 percent of the first mortgage. Their total down payment was $25,000, $15,000 in cash and $10,000 from the Maryland program. Although their monthly mortgage payment of $2,616 is higher than their rent would have been, “why would we continue to rent when we could buy something and build equity,” Lewis said.
  • Make a larger down payment. Larger down payments can lower your interest rate. “A lender is looking at the risk,” Yun said. “A larger down payment means less risk. You might be able to negotiate a rate that is a quarter percentage point lower."
  • Ask for financial help. Ask a relative to loan or gift you down-payment funds. Find someone to co-sign your loan. If you are single, ask a parent or grandparent to co-sign the loan, said Little. You might get a better mortgage rate.
  • Pay points to lower your rate. A point is a fee paid to a lender equal to 1 percent of the loan amount. Sometimes it makes sense but it depends on how much the upfront cost will lower your mortgage rate and how long you intend to live in your home, said Lee.
  • Consider an adjustable-rate mortgage. An adjustable-rate mortgage (ARM) can have a slightly lower rate than a 30-year fixed, said Kan. If you plan to sell the home before your mortgage resets to a higher rate, it can be an option. But beware that if rates are higher when your loan resets, it can be costly, creating a higher monthly payment. Some ARMs adjust every six months after the initial locked-in rate and some have no caps on the increase, said Banner.