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Home / Articles / How to Afford a House With Rising Prices and Interest Rates

In the third quarter of 2022, the median home price in the U.S. was around $400,000. That means the average homebuyer required a six-figure income to afford their purchase — and the $2,682/month payment that accompanied it. If that seems steep, don’t lose hope. Here are six strategies to help you afford that new home you’ve been dreaming of when prices and mortgage rates are high.


1. Choosing a property. There’s an old real estate saying: “Location, location, location.” And that’s because location is such an important driver of price and value. While picking a prime location can drive price up, moving a little further from a city or choosing a less sought-after neighborhood can help control costs. You can also consider an older home — taking into account the cost of potential repairs — or one with a smaller footprint. These moves may also lower your property taxes.


2. Adjustable-rate mortgages (ARMs). Unlike a fixed-rate mortgage, the interest rate of an ARM can vary over the loan term. The “start rate,” also called an intro or teaser rate, is fixed for a predetermined period (such as five years for a 5/1 ARM), but then can fluctuate according to an index — typically the secured overnight financing rate, or SOFR, plus a margin. The 1 in a 5/1 ARM means that the interest rate can subsequently adjust every (one) year. ARMs typically carry a lower rate than fixed-rate mortgages but carry the risk of going higher over time. An ARM may make more sense if you’re confident you will sell the home within the period of your start rate; otherwise you risk not being able to afford your payments in the future.


3. Higher down payment. If you can scrape together a higher down payment, it can lower your monthly payment significantly. And by exceeding the 20% threshold, you can save even more by dropping private mortgage insurance, or PMI.


4. Put time on your side. Real estate deals may be few and far between in a competitive real estate environment, but you have a better chance of scoring one if you’re not in a hurry. Allow plenty of time to shop around so you can take advantage of any lulls in the market.


5. Negotiate and lowball. It may be a tougher sell in a hot market, but you still may get lucky by putting in low offers. Consult with an experienced real estate professional for advice on getting your best chance of having a seller accept a lowball offer, knowing you may need to make a bunch of them before someone bites.


6. Get preapproved. Do what you can to make your offer more attractive by getting your financing preapproved by your lender. If a seller needs more time to get out of their home, you may be able to contract to let them stay and rent it out from you. Waiving contingencies comes with risks, so don’t do this without careful consideration.


Buying a home is one of the biggest purchasing decisions anyone ever makes. A consultation with a qualified financial professional can help you weigh your options.