House Purchase Decision: Indicators You're Financially and Emotionally Prepared
In the current housing market, high mortgage rates are causing a significant impact on homebuyers, making the process of purchasing a property more challenging.
Typically, closing costs, which range from 2% to 5% of a property's sale price, are an additional expense to consider when buying a house. However, these costs may be negotiated with sellers, potentially reducing the financial burden.
Partnering with an experienced local real estate agent during the house-hunting phase is essential. This is because a solid credit score, manageable debt load, and steady income are beneficial for buying a house. A stable job and job security are also essential for homeownership, as it lowers the risk of defaulting on the mortgage.
Buying a house can start building financial security as you pay down the mortgage and build home equity. However, in the current market, high mortgage rates significantly increase the cost of financing a home. Elevated rates, which have remained above 6.5% throughout 2025, increase the monthly cost of payments, putting upward pressure on buyers' required income and monthly budgets. This makes it harder for many to qualify for loans or sustain payments.
As a result, buyers can afford less home for the same monthly payment amount. This effectively shrinks the pool of affordable homes available to buyers while home prices remain high. The combination of rising home prices since COVID and persistently high mortgage rates has pushed housing affordability to all-time lows in the U.S.
The high mortgage rates and housing prices are reflected in weak home sales recovery and low buyer confidence, with the share of households saying it's a good time to buy near record lows. Although housing inventory has increased somewhat, it remains low historically, sustaining high prices that, along with high borrowing costs, further impede affordability.
Even small changes in mortgage rates noticeably affect buyer demand, with lower rates spurring increased applications and higher rates slowing activity. This situation is expected to persist until mortgage rates notably decline, potentially after 2025.
It's important to avoid any major changes in financial situation during the home-buying process, as they could cause mortgage application rejection. Buying a house when interest rates are high isn't ideal, but it isn't necessarily a deal-breaker if you have a good credit score, consistent income, and can afford a down payment.
Property taxes, homeowners insurance, and maintenance are other homeownership-related costs to consider. When you own a home, all maintenance and repair costs are your responsibility. A rule of thumb is to set aside at least 1% of your home's purchase price every year.
Shopping around for the best mortgage interest rate is important when the time comes to buy. Grants and programs are available to help homebuyers with down payments. Before starting to look for homes, it's advisable to get preapproved for a mortgage.
Rising rent can make it harder to budget for monthly housing costs and save for other financial goals. Homeowners insurance coverage is necessary and can be quite pricey in high-risk areas.
In summary, high mortgage rates raise homebuying costs substantially, reduce buyers' affordability and purchasing power, and contribute to historically low housing affordability — thus dampening demand and keeping many prospective homeowners out of the market. It's crucial for potential buyers to be aware of these challenges and prepare accordingly.
[1] Freddie Mac, "Mortgage rates today and this week" (accessed April 15, 2023).
[2] National Association of Realtors, "Existing-Home Sales Drop in January" (accessed April 15, 2023).
[3] National Association of Realtors, "Consumer confidence in housing market remains low" (accessed April 15, 2023).
While shopping around for the best mortgage interest rate is crucial, high mortgage rates can significantly increase the cost of financing a personal-finance goal like buying a house. To mitigate the financial impact, it's essential to budget for additional expenses such as closing costs, property taxes, homeowners insurance, and maintenance costs, which together can amount to a sizeable portion of the property's sale price.
