As rents rise, buying can hedge against inflation
Tenants across the country are facing record annual rent increases.
In Bernalillo County, average monthly rents have risen 20.8% since the pandemic began, meaning Albuquerquens are having to sacrifice more of their income to keep up.
Owning a home, on the other hand, is a hedge against inflation and can protect you against rising rental prices. But buyers currently renting may struggle to save for the upfront costs of home ownership. Additionally, recent interest rate hikes mean buyers may need to budget for higher monthly mortgage payments or reconsider how much they are willing to borrow to ensure it is manageable with other financial priorities.
Still, if you find yourself ready to buy a home—or are looking for ways to make it more affordable in the near future—there are several strategies to consider that can help you save on buying a home:
Make the most of the amount you’ve saved: Although many people can afford a monthly mortgage payment, it can be difficult to save for the initial costs of home ownership. If you’re looking to buy, but wonder if you’ve saved enough for a down payment, consider reviewing what percentage of the total purchase price you’re willing to spend on a down payment. A common misconception is that lenders charge 20%, but these days most borrowers put away much less.
There are also plenty of solutions to help potential buyers overcome upfront costs, including loans requiring as little as 3% down payment with lower-cost private mortgage insurance. Additionally, grant programs such as the Bank of America Down Payment Grant and America’s Home Grant provide eligible borrowers in Albuquerque with up to $17,500 in down payment and closing cost assistance without refund required.
Building a good credit rating: Your credit rating affects how you are perceived as a potential borrower when buying a home. It is therefore important to adopt responsible credit behavior, such as making payments on time and being careful not to overspend. One way to take the first step toward improving your credit score is to review a copy of your credit report for any errors. Also, be sure to avoid late payments and keep your credit utilization rate low.
Pay discount points on your mortgage: Mortgage points, also known as discount points, are fees you pay to your lender at closing to get a reduced interest rate on your loan. Paying rebate points on your mortgage could offer potential savings over the life of the loan. In general, the longer you plan to own the home, the more you’ll save by using Points, so consider how long it takes to recoup the cost of purchasing Points – or the break-even period. Also determine if you have the cash available to purchase points in advance.
If you have to choose between making a 20% deposit and buying points, make sure you do the math. A lower down payment may require you to purchase private mortgage insurance, so consider whether that extra cost would negate the benefit you would get from buying points and lowering your interest rate.
Make pre-approval a top priority: Pre-approval makes you a more desirable buyer and can set you apart in a competitive market. If you’re pre-approved for a mortgage, it means the lender has looked at your income, credit, and other expenses to determine the mortgage amount you qualify for.
In markets as competitive as Albuquerque, no pre-approval can mean immediate rejection from salespeople seeking to verify that prospects are serious about buying. The best deal isn’t always the one a seller can pick – sellers often pick buyers they’re most confident will close the loan in the time frame they want.
Buying a home isn’t a one-size-fits-all approach, and working with a loan specialist can help you understand the best money-saving tactics for your financial situation. By knowing where you are and what the next steps look like, you’ll feel more confident and prepared as you make the biggest (and most rewarding) purchase of your life.
The Office of the Executive’s Guest Column provides tips, feedback, or information about resources available to the business community in New Mexico. To submit a column for review, email [email protected]