Who Is Buying A House with 7% Interest Rates?! | Ep. 17
In today's housing market, with interest rates hovering around 7%, many potential homebuyers are grappling with a crucial decision: Should they buy now or wait for rates to drop? While there's no universal answer, understanding your situation and motivations can help you make the right choice.
The Reality of 7% Interest Rates
We've been experiencing interest rates around 7% for over two years now. They've fluctuated between the high 5% range and 8%, but 7% seems to be the average. This means borrowing money for a mortgage is significantly expensive. To put it in perspective: on a $400,000 house with a minimal down payment, you could end up paying over $500,000 in interest alone over a 30-year term.
Two Approaches to Home Buying
When considering whether to buy at these rates, it's crucial to understand your primary motivation. There are two main approaches to home buying:
Investment Mindset: Viewing the home primarily as a financial vehicle
Primary Residence Mindset: Focusing on the home as a fundamental need for shelter
While both approaches are legitimate, trying to optimize for both simultaneously can be problematic. Let's explore each perspective separately.
The Investor's Perspective
For investors, high interest rates actually present some unique opportunities:
Less competition in the market due to fewer qualified buyers
More negotiating power for better purchase prices
Opportunity to "make money on the buy" rather than the sell
If you're approaching this as an investor, consider house hacking strategies:
Purchase a duplex, triplex, or fourplex
Convert a home to include a basement suite or ADU
Generate income from day one to offset the high mortgage costs
Remember that investment properties typically carry interest rates about 1% higher than primary residences and usually require at least 20% down. However, by house hacking, you can access primary residence loan terms while still treating the property as an investment.
The Primary Residence Perspective
If you're buying primarily for a place to live, here are key considerations that might justify buying even with 7% rates:
1. The Value of Ownership
When renting, you face limitations:
Need permission for structural changes
Hesitation to invest in improvements
Uncertainty about lease renewals and rent increases
Limited control over your living space
2. Time-Sensitive Life Situations
Consider factors like:
Family needs, especially with children at home
Limited windows of opportunity
The value of immediate ownership versus waiting years to save or for rates to drop
3. Affordability Assessment
Can you comfortably afford a home that:
Keeps your mortgage payment below 33% of monthly take-home pay (ideally closer to 28%)
Meets your needs for at least 5+ years
Allows for some financial buffer in case of changes in your situation
Addressing Common Concerns
Market Volatility
Worried about potential market crashes? Remember:
Losses are only realized if you sell
Housing markets are cyclical
Long-term holding typically outpaces inflation
Focus on buying a home you can stay in long-term
Making Your Decision
You should consider buying at 7% rates if:
As an Investor:
You can secure a great purchase price
The property can generate immediate income
You're willing to sacrifice some primary residence ideals
As a Primary Resident:
You strongly value homeownership
You're in a time-sensitive life situation
You can comfortably afford payments
The available homes meet your long-term needs
Remember, there's no shame in waiting or continuing to rent if these conditions don't align with your situation. The key is making a decision that serves your specific needs and circumstances, rather than trying to time the market perfectly.
For more detailed information and resources, join our free Skool Community at skool.com/diyhomebuyer
