FHA Purchase Loans: Buying a House in a Tough Market

March 18, 2023

Like other home loan interest rates, FHA mortgage loan rates rose in late February and early March 2023.

Some potential borrowers are confused by the economic reports from other sectors, wondering why in a time of inflation, people are spending money on travel and dining out even as they contemplate whether or not to buy a home this year.

One reason people are spending more money in certain areas right now? Because in those areas, rising interest rates aren’t necessarily a factor.

A spokesperson for Freddie Mac notes consumers are spending their money in sectors that are not “interest rate sensitive.” Some of these consumers are spending more elsewhere and putting their plans to buy a new house on hold.

When You Must Buy a Home

Not all consumers have the luxury of being able to wait to purchase a new home. Those who cannot wait may wonder how to offset some of the anticipated economic pain.

Some market watchers note that the higher interest rates have had the effect of cooling off the competitive housing market we saw in the summer of 2022. A Yahoo! Finance article from March 11, 2023, notes that last year a seller might have had four offers on the table for their property at a given time. But in 2023, it’s more like two offers at a time.

That puts some sellers in a position where they may be more willing to negotiate, unlike last year when a hot housing market put sellers more in control thanks to high demand and low inventory.

There is still a lack of available homes for sale in some areas, but the Yahoo! Finance article reminds us that between now and summer, there will be more homes hitting the market.

More Room for Negotiating in 2023

This year’s house hunting season seems to bring more potential for negotiating with the seller. But negotiating with the lender may be an option, too, as Yahoo! Finance reports new home loan applications were down well over 50% compared to last year.

Lower Rate Options

For some borrowers, lowering the mortgage rate up front as much as possible is a priority. For those who can afford to buy discount points upfront to lower their rate, it's an option worth considering if you plan to stay in the home for a long time.

There is also the potential to save more on interest by applying for a shorter loan term (a 15-year FHA mortgage) instead of a longer one.

The trade-off is higher monthly payments, but if you can afford to make them and want the lower rate, consider your options with a 15-year FHA mortgage instead.

Ask your lender to run a 15-year and 30-year version of your loan estimate to see how you could save over time with the lower rate. This option is worth considering if you want to keep the home and don't plan to sell within a few years.

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Learn About the Path to Homeownership
Take the guesswork out of buying and owning a home. Once you know where you want to go, we'll get you there in 9 steps.

Step 1: How Much Can You Afford?
Step 2: Know Your Homebuyer Rights
Step 3: Basic Mortgage Terminology
Step 4: Shopping for a Mortgage
Step 5: Shopping for Your Home
Step 6: Making an Offer to the Seller
Step 7: Getting a Home Inspection
Step 8: Homeowner's Insurance
Step 9: What to Expect at Closing