Tips for adjusting your house-buying plans to realities

Millennials are in peak nesting mode.there’s just a not-so-small problem.

The median existing home sales price of U.S. homes was $389,500 in August, according to the National Association of Realtors. That’s a 7.7 percent increase from August 2021. The average interest rate for 30-year fixed-rate mortgages topped 6 percent as of Sept. 15 this year, according to Freddie Mac. Compare that with an average rate of 2.86 percent just one year prior — that’s a 110 percent increase.

It can be hard to compete when an open house feels like a cage match. It’s enough to make anyone retreat to a rental for a while.

“We’re seeing that those who were thinking of buying a home just aren’t interested anymore,” says Natalie Slagle, a certified financial planner and founding partner of Rochester, Minnesota-based Fyooz Financial Planning.

“People aren’t as willing to make big financial moves when it feels like there’s uncertainty.”

Though you may feel stuck right now, you don’t have to be forever. Here’s what to do in the meantime.

Re-evaluate your situation

In slowing down your house hunt, you’ve given yourself the gift of extra time. You can reassess what’s realistic for you. Over the next year or so, your life may change a lot, meaning your list of must-haves for a home might need a few edits.

Amanda Astey moved to San Francisco with her husband seven years ago. They considered buying a home after living in the city for two years, but backed out after they were unable to find anything in their price range at the time. Now, they’ve advanced in their careers and are open to resuming the search.

“Even with that, we’ve been pretty discouraged,” she says.

They’re open to living farther from the city — and even to leaving the state in search of more space for the money. “We’ve had a huge exodus of friends to Portland. A whole bunch of friends have gone to Denver,” she says. “It’s seeming more and more likely that another city would be our best option.”

Become an even more attractive buyer

If your budget and mortgage preapproval were so-so this time around, take the next few months to beef up your finances so you’re in a stronger position later on.

One place to start is with discretionary spending. If you can cut back and possibly increase your income with a promotion, job or freelance work, you can add to your savings and be prepared to make a larger down payment. You may also be able to increase your overall budget for a home.

Paying down existing debts can help, too, as that will lower your debt-to-income ratio.

A higher credit score can help you qualify for better mortgage terms, hopefully ensuring you can get as low an interest rate as possible. If you already have excellent credit, keep it there by paying your bills on time every month. Late payments can ding your credit, and you’ve already worked hard to get where you are.

If your credit score is lower, on-time payments can still help you, as can limiting what other loans or credit cards you apply for in the months before you apply for a mortgage.

Adjust your expectations for interest rates

Sometimes your life plans don’t line up with economic conditions, so you may not be able to wait indefinitely for interest rates to go down. In that case, you’ll have to stomach higher monthly payments, and if interest rates go lower in the future, you can refinance. You may have to make some concessions to accommodate a more expensive loan, like reducing your overall budget or widening your search over a larger area.