Buying Power for Today's Delaware Home Buyers

What exactly is buying power? Well, to break it down, buying power is the money an investor has available to buy securities in a trading context. What is buying power versus cash? Purchasing power is the total amount an investor has to buy securities, consisting of cash, account equity, and available margin, aka money that can be borrowed. And how can this all possibly affect buying real estate? Continue to read to find the answer to that major question.Understanding Buying Power & How to Save Money in Buying Real Estate

Buying Power & Saving Money on Real Estate

Additionally, there are a few other ways you can increase your purchasing power in real estate:

  1. Increase your income: One way to increase your purchasing power is to increase your income. This could be through getting a raise at your current job, taking on a second job, or starting a side hustle.
  2. Shop around for a mortgage: Different lenders will offer different mortgage rates, so it's important to shop around and compare offers. A lower mortgage rate can lead to lower monthly payments, which can increase your purchasing power.
  3. Consider a shorter mortgage term: A shorter mortgage term, such as a 15-year mortgage instead of a 30-year mortgage, can lead to lower overall interest payments and a lower monthly payment. This can increase your purchasing power by allowing you to afford a more expensive home.
  4. Make a larger down payment: A larger down payment can lead to a lower mortgage amount and lower monthly payments. This can increase your purchasing power by allowing you to afford a more expensive home.
  5. Look into government programs: There may be government programs available that can help you afford a home, such as the FHA loan program or VA loan program for veterans. These programs may offer lower down payment requirements and lower interest rates, which can increase your purchasing power.
  6. Negotiate closing costs: Closing costs, such as lender fees, title insurance, and appraisal fees, can add up quickly. You can negotiate with the seller to see if they will cover some or all of the closing costs. This can help you save money and increase your purchasing power.
  7. Look for properties that need work: Properties that need work or renovations can sometimes be purchased at a lower price, and you can use the money you saved to make the necessary repairs or updates. This can increase your purchasing power by allowing you to afford a more expensive home after making the repairs.
  8. Look for off-market properties: Off-market properties, also known as pocket listings, are properties that are not actively being marketed for sale. These properties can sometimes be purchased at a lower price because they are not being actively advertised.
  9. Consider purchasing a smaller home: While larger homes may be more desirable, they also tend to be more expensive. Purchasing a smaller home can save you money and increase your purchasing power.
  10. Partner with another person: You can consider partnering with another person, such as a family member or friend, to purchase a property together. This can allow you to pool your resources and increase your purchasing power.

How Higher Interest Rates Affect Buying Power

Higher rates = less purchasing power.
As rates go up, the amount of homes you can afford goes down. For every 1% increase in interest rates, your buying power decreases by 10%. Four main factors affect interest rates. The interest rate for each different type of loan depends on the following:

  • Credit Risk 
  • Time 
  • Tax Considerations
  • Convertibility of the Loan

How do interest rates affect buyers and their decisions?

Higher rates mean higher borrowing costs, therefore people will eventually start spending less. The demand for goods and services will drop, which can cause inflation to fall. A 1% increase in rates can add hundreds of dollars to a monthly payment and make it difficult to qualify for a loan. As a result, you may potentially purchase a less expensive home or wait until rates drop before entering the market.

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