With today's home values being high and mortgage rates on the rise, many home buyers are finding it more difficult to purchase a home. It is important for home buyers to prioritize their "wants" in a home. Further, in the spirit of keeping their home values up, it is important to prioritize those "wants" in regards to what will bring them the most value in the future.
The Impact of Higher Interest Rates
Today's higher interest rates will result in higher mortgage payments for many home buyers. If these home buyers cannot afford the higher payments, they will have to purchase lower priced homes. In an article written by TJ Porter on December 19, 2022 on Bankrate.com it states, "As we've seen in recent months, as rates shot up from 3.4 percent in January 2022 to 7.12 percent in October, this phenomenon can make it harder for many people to buy a home - and push some hopeful first-time buyers out of the market completely."
The same article gives the example, "At a 4 percent interest rate, a $250,000 mortgage would cost $1,194 per month. At 6 percent, the same loan would cost $1,439." This is a $245 difference per month and could make an impact on whether or not some home buyers could afford or even be qualified to purchase a home at this price.
Prioritizing Your "Wants"
Real estate agents often ask their buyers to make a list of "wants" and "needs" in a home. A "need" is a necessity. A "want" is something you find beneficial. In today's market, buyers need to prioritize their "wants" because they may not be able to afford all of them. For example, if you need a three-bedroom home based on the number of people in your family but want a four-bedroom home so you have an extra room to use as a workout room, you may have to forego that fourth bedroom if a four-bedroom home is not in your price range because of the higher interest rates.
Another example is the size of your lot. Land is expensive, so you may not be able to afford a home with a larger yard right now. Buyers may want a three-car garage for extra storage space as well. With today's home prices and interest rates, they may only be able to afford a two-car garage. It is also a good idea to prioritize based on what can be changed or added in the future. For example, if you want a home with a fireplace but cannot afford it now, you can always have a fireplace put in later. Or, you may want a home with a pool in the backyard. You can always have a pool put in at a later time when it becomes more affordable for you.
Be Sure to Choose "Wants" Wisely Based on Value
Home buyers should choose their "wants" and "needs" wisely. Be sure to choose the "wants" that will retain value in your home. The website hud.gov has a home "wants" and "needs" checklist which home buyers might find useful. For example, a home with four bedrooms without a fireplace has more value than a home with three bedrooms and a fireplace. You are better off choosing that fourth bedroom than the fireplace in terms of value.
Another example is a four-bedroom home with a three-car garage and no patio in the backyard. It has more value than a four-bedroom home with a 2-car garage and a patio in the backyard. The third-car garage has more value than the patio in this instance. A third example may be your desire to purchase a home with an in-ground swimming pool. Future home buyers may not give much value to a swimming pool because they might think of it as a potential safety hazard.
If you have any questions about how to choose certain "wants" in your home, consult with a qualified, licensed and experienced real estate agent.