Buying a Home in San Diego? Plan for Rate Changes.

If you've been thinking about buying a home, you've probably been keeping a close eye on mortgage rates. And if those rates have you wondering whether now is the right time to buy, you're certainly not alone.

Here's the thing. Even a relatively small change in mortgage rates can make a pretty significant difference in your monthly payment, especially here in San Diego, where the median list price is approximately $985,000.

I've had plenty of conversations with buyers who are trying to decide whether to jump into the market now or wait for rates to improve. I get it. Nobody wants to stretch their budget, and nobody wants to feel like they bought at the wrong time.

But the reality is, none of us knows exactly where mortgage rates will be three, six, or twelve months from now.

Rather than trying to time the market perfectly, I'd rather see buyers prepare for a few different scenarios.

Realtor.com analyzed more than 20 years of mortgage rate data and developed a helpful framework for how much movement buyers should plan for, depending on when they're hoping to purchase.

Let's break that down using real numbers that make sense for San Diego.

For these examples, we'll use a $985,000 home with 20% down, leaving a mortgage of approximately $788,000.

Buying Within the Next Year? Plan for a 1% Change

If buying a home is somewhere on your radar in the next 12 months, Realtor.com's research suggests planning for mortgage rates to move as much as one percentage point in either direction.

Historically, rates stayed within a quarter of a percentage point of where they started about 29% of the time over a 12-month period. But the middle 80% of historical changes ranged from approximately 0.98% lower to 0.94% higher.

That's why planning for a full percentage point of movement makes sense.

Here's what that looks like on our $985,000 San Diego home:

• At 6%, your monthly principal and interest payment would be approximately $4,724.
• At 7%, that payment increases to approximately $5,243.
• At 8%, you're looking at approximately $5,782.

That's more than a $1,050 monthly difference between 6% and 8%, on the exact same home.

Over a year, that's more than $12,000.

And remember, we're only talking about principal and interest. Property taxes, insurance, HOA fees, and other ownership expenses are additional.

This is why I always encourage buyers to understand their monthly comfort zone before they start looking at homes.

Just because a lender says you qualify for a certain amount doesn't necessarily mean that's what you should spend.

Buying Within Six Months? Plan for a 0.75% Change

If you're planning to buy within the next six months, historically there's been a little less movement in mortgage rates.

Realtor.com's research found that the middle 80% of six-month rate changes ranged from approximately 0.63% lower to 0.63% higher.

So, to keep things simple, let's plan for a 0.75% change in either direction.

Using our same $985,000 San Diego home with 20% down:

• At 6.25%, your monthly principal and interest payment would be approximately $4,852.
• At 7%, your payment would be approximately $5,243.
• At 7.75%, your payment increases to approximately $5,646.

That's almost an $800 monthly difference between the low and high ends of that range.

Think about that for a minute. Nothing about the house has changed. Same property, same purchase price, same down payment.

The only thing that changed was the interest rate.

This is exactly why I don't want my buyers qualifying at today's rate and assuming those numbers will still work six months from now.

A little planning now can save a lot of frustration later.

Buying Within Three Months? Plan for a Half-Point Change

If you're getting serious about buying in the next three months, historically the range of mortgage rate changes gets even smaller.

Realtor.com found that the middle 80% of three-month rate changes ranged from approximately 0.40% lower to 0.45% higher.

So planning for a half-percentage-point change is a reasonable starting point.

Let's look at our San Diego example one more time.

• At 6.5%, your monthly principal and interest payment would be approximately $4,981.
• At 7%, your payment would be approximately $5,243.
• At 7.5%, your payment increases to approximately $5,510.

That's a difference of more than $500 per month, just from a one-percentage-point spread in rates.

The closer you get to purchasing, the more accurately you can estimate your payment. But until your mortgage rate is locked, those numbers can still change.

And while historical data is helpful for planning, it certainly isn't a guarantee of what rates will do next.

Don't Just Ask What You Qualify For. Ask What You're Comfortable With.

This is probably the most important part of the conversation.

When you're meeting with a lender, don't just ask how much you qualify to borrow.

Ask what your payment would look like if rates went up another half-point or even a full point.

Then ask yourself whether that payment still works for your lifestyle.

Because qualifying for a mortgage and being comfortable with the payment are two very different things.

There are also strategies we can explore if rates move higher than expected.

Depending on the property and the terms of the offer, we may be able to negotiate seller concessions toward closing costs or a temporary or permanent rate buydown.

You might decide to increase your down payment, adjust your target price, or simply give yourself a little more time.

Every buyer's situation is different, and that's why I believe having these conversations early is so important.

A Few Things You Can Do Right Now

Whether you're planning to buy in three months or a year, here's what I'd encourage you to do before you start touring homes.

• Know your numbers. Have your lender run payment scenarios at several different interest rates so you understand what changes.
• Establish your comfort zone. Decide what monthly payment works for you, not just what the bank will approve.
• Explore your options. Ask about rate buydowns, seller concessions, and different loan programs that might make sense for your situation.
• Pay attention to your debt. Reducing revolving debt can improve your debt-to-income ratio and potentially give you more borrowing flexibility.
• Leave yourself some breathing room. Homeownership comes with expenses beyond the mortgage, and you don't want every dollar going toward your house.

And don't wait until you're ready to write an offer to start these conversations.

Some of the best decisions my buyers make happen months before we ever walk through a front door.

The Goal Isn't to Perfectly Time the Market

I've been in real estate long enough to know that nobody consistently times the market perfectly.

Not buyers, not sellers, and certainly not those of us who work in the industry every day.

You could wait for mortgage rates to come down, only to find yourself competing with more buyers. You could buy now and potentially refinance later if rates improve, although refinancing is never guaranteed.

Or you could discover that the right home, at a payment you're comfortable with, is available today.

My advice has always been to focus on what makes sense for you, your finances, and your long-term plans.

If you're thinking about buying a home in San Diego in the next three to twelve months, let's start the conversation now.

We can look at your goals, connect you with a trusted lender, and put together a plan that gives you some flexibility if rates move.

I'd much rather help you prepare now than have you find a home you absolutely love, only to discover the numbers no longer work.

The right home is important. Making sure you can comfortably afford it is even more important.