One popular piece of advice given to first time home buyers is to ‘marry the house, and date the rate.’ This phrase refers to the idea of putting more emphasis on finding a house that meets your needs for the long term, and thinking of the interest rate in the short (temporary) term.
Let’s take a closer look at this concept and see what it could mean for you as a first time home buyer.
Why you should ‘marry the house’
When you’re looking for a home, you should focus on finding one that suits your needs and lifestyle, rather than focusing solely on getting a great rate. After all, if you find yourself living in a house that doesn’t meet your needs, chances are you won’t be happy for long…no matter how great of a deal you got. Therefore, it’s important to prioritize features that fit your family size, like with bedrooms and bathrooms, as well as amenities that will maximize your enjoyment of the property, like a pool or outdoor space. Even if what you’re purchasing right now is a starter home, ensure that it still meets your current needs in addition to having the right features to make it attractive to future buyers.
The idea of ‘marrying the house’ means viewing the house as a long term commitment.
The idea of ‘dating the rate’ means viewing the rate as a short term, temporary commitment.
The benefits of ‘dating the rate’
Before even shopping for a home, you should have spoken at length with a lender and discussed your budget. A crucial component of this discussion concerns the interest rate you qualify for. Interest rates change daily, so keep that in mind.
In a higher interest rate market like today, you have a few options to get better rates:
- You can increase your credit score
- You can increase your down payment
- You can ‘buy down’ the rate (i.e. money you pay in cash that lowers your interest rate)
In each case, your unique circumstances are what determines how much these options will actually affect your rate.
The idea of ‘dating the rate’ is simply that you are betting on rates going lower in the future, or your credit increasing enough, that you can refinance into a better interest rate loan somewhere down the line. Nobody knows exactly what interest rates will do; this being said, investing in the possibility of lower rates by ‘dating the rate’ will give you options in the future. And if rates never do go down, you’ve still ‘married’ a house that you love at whatever rate you got when you originally purchased it.
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Say what you will about the phrase ‘marry the house, date the rate,’ but the idea behind it stands: buy a house for the long-term, and manage the interest rate in the short-term.
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A quick history lesson on mortgage rates…
Take, for example, a 30-year fixed mortgage. In the 70s, rates were in the mid-7% range and started to increase around 1974. This climb continued through the end of the decade where it reached 10.11% by the end of 1978.
In 1981, mortgage rates topped out at 18.45% and remained in double digits for most of the decade. By the late 90s, mortgage interest rates dropped below 10% and have continued to hover around 6-7% for much of the past 20 years.
Of course, we saw a huge drop in rates in 2020; December rates sat at 2.68% and most of 2021 saw rates in the high 2%’s and low 3%’s. In March of 2022, rates began to rise with numbers reaching the 6-7% range.
During each high and low, people still bought houses. During the low rates, people refinanced out of high interest rate loans. Those that bought their homes in the 80s, at the peak interest rates, cut their payment nearly in half if they refinanced 10 years later. This is a perfect demonstration of ‘dating the rate.’ Some loan programs even have streamlined refinance options, and many lenders also have options to refinance at a very low cost to you (or no cost at all) to help you get into a more affordable loan. A crucial factor to remember, whether your rate is high or low, is to make sure that you can afford the payment you’re making. If the interest rates never drop, then you’re fine. And if they do drop, then you’ll be saving money.
At the end of the day…
Deciding to buy a home is a big decision, and one to be made carefully. Make sure you’re doing your research and choosing a house that’s right for you. When it comes to deciding on an interest rate, don’t panic if rates are high. Remember that they can change at any point, and you can (and should) always take advantage of those lower rates to save money in the future. So when it comes to ‘dating the rate,’ just consider that as an added bonus to your home purchase.