Have questions about how to buy a home in this crazy market, ways to beat the system, and common mistakes home buyers make? Check out our Money Guy Guide to Buying a House!

1. I would definitely use a mortgage broker again.

A good mortgage broker may be able to get you much better rates than you would otherwise qualify for. The broker we used was phenomenal and scored us an interest rate about 0.50% lower than typical rates at the time (looking at rates, we essentially got the rate of a 15-year mortgage but for a 30-year mortgage). With mortgage rates higher than they’ve been in decades, it’s especially important to save money where you can and get as low of a rate as possible.

Working with our broker was a breeze; he is local and works for a small family-run business and I knew I could always pick up the phone and ask him any questions I had about the process. By using a broker, we essentially got the super-competitive rate of a large national bank, or even better, and the service of a local family-run business.

2. I’m glad we didn’t cut corners on the inspection.

I’ve heard before of home buyers purchasing homes and waiving the inspection (primarily during the housing frenzy that occurred between 2021-2023), but I never realized how crazy that was until we purchased our home. Our real estate agent recommended an awesome inspector who went above and beyond inspecting the property and alerting us to issues we didn’t know about. The inspection was so cheap compared to all the other costs associated with buying a home that I can’t imagine why someone would want to save money and skip the inspection (unless they are buying a new construction, potentially).

For reference, our home is 20 years old so it is definitely not ancient and falling apart. The inspector uncovered some minor and moderate issues with the house that helped us negotiate with the seller and, by being made aware of and fixing these issues now, so they did not become big headaches in the future.

3. I would never buy a home without an agent.

I will not judge you if you are experienced in buying houses and don’t want to use an agent, but as someone that had never been a part of a real estate transaction before, I am so glad we used an agent. Our agent was intimately familiar with the local market and was able to use that knowledge to help us get into an amazing home at an amazing price. I know for a fact we would be spending substantially more on a home if we had not found a great agent to help us along the way.

4. If I could do it differently, I wouldn’t get so attached to the first home I fell in love with.

When you find a home you really love, it can be difficult to move on if you don’t get the home. The home I first fell in love with sold to someone else, but we ended up finding an even better home, in the same neighborhood, for a better price. I would caution potential buyers about becoming laser-focused on one home. Your offer might not get accepted or issues could come up during the inspection that cause you to back out. It’s easy to imagine yourself in homes you really like, but always keep your options open until you are under contract on a house. Like most big issues in finance, our emotions can betray us so it is important to keep an open mind and to be well grounded in knowing what you are looking for based on a solid list of must and nice to haves.

5. No home is perfect, and you will have to make sacrifices.

Unless you can build the home of your dreams from the ground up, you will probably have to make sacrifices when buying your home. Our home? The roof is old, there are rats in the crawlspace (working on it), the HVAC will need to be replaced soon, the yard is very sloped and has drainage issues, and I could go on. But our home is in a great neighborhood, we love the layout and the amount of space, we have hardwood floors (this was mostly a big deal for me and not my wife; I just hate fake hardwood floors), the landscaping is beautiful, I have room for a vegetable garden, the appliances are modern and updated, and it’s setup to a great place to create blossoming memories for my family.

When you buy a home, you need to figure out what is most important to you and what you are willing to sacrifice on. Chances are you will have to make sacrifices, but that’s okay.

6. Interest rates may not go back to 2020 levels anytime soon (and home prices may never return to 2020 levels).

We are fortunate to have found a home we can afford, but this was still a tough pill to swallow. At interest rates four years ago, or at home prices four years ago, we could buy so much more home. It hurts to think about what could have been if we had bought a house back in 2020 – until I think about how unprepared we were to buy a house back then. We were both at different points in our careers, we didn’t have much saved for a house or retirement, and weren’t ready to buy a home by any measure.

We bought a home that fit in our budget at current rates. We could have stretched and bought more home, but we want a home we can afford now, not a home we can theoretically afford if interest rates drop by a certain amount.

7. I’m glad we didn’t wait until we were able to put 20% down.

Who are these people buying their first home with 20% down and what is their secret? With prices rising like they have, we would have had to make tremendous sacrifices even to consider purchasing a home if we had to put 20% down. If we wanted to buy anytime soon, saving for retirement would not be happening. If we wanted to save for retirement and put 20% down on a house, it could be years or longer before we could buy.

Putting less than 20% down on a home is riskier since you start with less equity and more expensive since you pay PMI. The alternative, though, is much worse for many first-time buyers. Prices could continue to climb and run away from you or you may only have margin to save for a home and nothing else.

Buying your first home is never easy, especially right now. If you are looking to buy soon or in the future, I hope my personal experience can make it a little bit easier when it’s time to buy.

A question we get a lot at The Money Guy Show is whether or not you should pay off your mortgage early. In this highlight, Brian gives some valuable insight on the different paths to build wealth and how to have a good outlook on wealth building in general.

For more information about how you can maximize every dollar that comes your way, check out the Financial Order of Operations.

How crazy is the current housing market?

The rise of home prices in the U.S. over the last two years only tells part of the story. Prices have risen 32.9% for the median home in the country, but market conditions where you live might be much different. In some markets, housing prices are rising over 25% annually. If you live in a more rural area, housing prices might still be going up, but at a slower pace.

Mortgage rates have increased substantially in a short period of time. 30-year fixed mortgage rates have shot up to 6.13%. At the beginning of this year, less than six months ago, rates were around 3%. The true cost of housing, when adjusted for interest rates, has gone up 93.0% since the second quarter of 2020. Housing has become much more expensive for Americans; the chart below, from Lance Lambert at Fortune, shows mortgage payment to income ratio, which is currently at 34%.† Through most of 2019 and 2020, this ratio was at 19%. Whichever way you slice it, homes have become nearly twice as expensive in under two years.

There are other byproducts of a crazy housing market besides the increase in price. The median home is only on the market for 31 days before selling; in more normal times, homes are typically on the market for 60-90 days before selling. 1 in 4 home buyers are waiving inspections, with the same number waiving appraisals. 42.4% of homes sold above asking price in February, the last month of data available, which is actually down from 56.4% sold above asking at the peak in June of 2021 (but is still elevated over the normal range of 20% to 30%).

Is supply catching up with demand?

There are some glimmers of hope in the housing market for those looking to buy, in addition to fewer homes being sold above asking price. The map below, again from Lance Lambert at Fortune, shows inventory levels rising in some of the hottest markets in the country. Note that the map only includes data for certain markets; the light gray areas are not showing no inventory change, they are just not included in the data set.

Rising interest rates will slow down demand. Americans will be, and already are, unable to afford as much home as they could last year or in 2020. Fewer potential buyers means homes will be on the market for longer or prices may need to come down. Some are beginning to warn of a housing market bubble. A senior research economist at the Federal Reserve Bank of Dallas, Enrique Martínez-García, says “This might be a housing bubble. The evidence suggests it looks like a housing bubble. A little bit like a duck. It walks like a duck, it looks like a duck, it certainly might be a duck.”

However, any so-called “bubble” in the housing market would look significantly different than the housing crash of 2008. Homeowners have locked in low fixed-rate mortgages, they are less burdened by debt, and balance sheets are healthier. The supply of new houses, in months, was also significantly higher before the 2008 crash (although that number is beginning to creep up again). Any decline in housing prices, if there is one, would be driven by a sharp drop in demand due to rising interest rates, not current homeowners getting in financial trouble.

How to buy a home in inflationary times

Nobody knows if home prices will go down. It seems unlikely and improbable that they will continue to increase at the same pace, with rising interest rates cooling off demand, but it remains to be seen if the market will slow or potentially decline. Regardless of what the housing market does from here, there are a few rules you need to keep in mind if you plan to purchase a home.

1. Be in your home for at least five years.

Given that nobody knows what the housing market will do in the short-term, you need to plan on owning your home for at least five years. If the market does drop in the short-term, you don’t want to sell your home when it is down in value or underwater due to expensive real estate transaction fees. This rule is especially important if you are a first-time home buyer putting 3% to 5% down. The housing market can take years to recover. The following chart shows how long home prices took to recover after the Great Recession. While the median sales price took six years to fully recover, some markets recovered even slower.

2. Due diligence is there for a reason.

Our second rule may be easier to follow now than it was last year or in the latter half of 2020. As demand cools, buyers will have an easier time making sure they get an appraisal and inspection. A home purchase is often a multiple six-figure decision or even a seven-figure decision. You need to know exactly what you are buying when spending that kind of money (and locking in a mortgage for 15 or 30 years). If you aren’t able to get a full inspection, at a minimum get a pass/fail inspection where you have the decision to walk away or buy the home as-is.

3. Know where your guardrails are.

If you’ve watched, listened to, or read any of our housing-related content, you know our rule of thumb for total spending on a home is to keep it below 25% of your gross income. We still want you to do everything you can to keep that number below 25%, but also realize that may not be possible in today’s housing environment. If you must exceed 25%, make sure you have other areas of your financial life in order. Is your income expected to increase in the next few years, growing to a place that will reduce your housing costs to 25% or less? How much slack is there in your emergency fund? How much are you currently investing for retirement? What happens if you can’t make your monthly mortgage payment?

Conditions for buying a home are currently not favorable for buyers, but conditions could be shifting. Inventory is increasing in many parts of the country, which, combined with higher interest rates, could drive down demand and increase supply. As someone currently on the outside looking in, I understand the struggle and frustration of seemingly watching the market pass you by. Whether or not you plan on buying a home this year or anytime soon, it’s important to stick to a set of guidelines to keep your finances on track.

† It is worth noting that this chart was last updated in May, when 30-year mortgage rates averaged 5.27%. With rates now higher, this number will be expected to climb, potentially past highs set in 2006.