High mortgage rates can be a buyer’s roadblock. How to get best deal in Hilton Head area
The math is simple, but that doesn’t make it less painful. A $500,000 house in Beaufort County carrying a 30-year fixed rate mortgage at 3.25% costs a family $2,176 in principle and interest each month. Same house, same terms but now with the interest rate climbing to today’s 8.25% and the monthly base payment jumps to $3,756.
That math is blowing an autumn chill into the local real estate market.
The mortgage interest rates have jumped to the highest they’ve been in decades. In Beaufort County, it’s pricing out certain buyers and changing how real estate agents sell homes and lenders arrange for financing .
This week marks the highest 30-year fixed-year mortgage rate —the most popular U.S. home loan — since 2000. At over 8% it’s climbed for its seventh consecutive week and driven mortgage applications to a 28-year low, according to the Mortgage Bankers Association.
Mortgage interest rates impact both the short and overall long-term cost of purchasing a home. A mortgage interest rate is part of the costs a lender charges a home buyer to take out a loan. When a home buyer repays a loan they must pay off the principal — the amount they borrowed — plus the interest it accrues. A higher mortgage rate leads to more interest accruing and costlier monthly payments when repaying the loan.
Even a 0.5% difference in interest rates can save a home buyer tens of thousands of dollars over the life of the loan, or cost them. Recent increases are changing the landscape of who is able to buy and sell property in Beaufort County, raising the bar for who can afford to live here.
To find out how The Island Packet and Beaufort Gazette spoke with real estate and lending experts. Here’s what they said:
Those looking for property to rent or resell aren’t able to see the return, making it difficult to create a positive cash flow on the investment.
Homebuyers who don’t have much cash up front are also feeling the squeeze. Some are first-time buyers, others have already owned property.
Buyers who have substantial cash available and able to front much of housing costs aren’t impacted as much.
Those who aren’t trying to make money on their homes, but rather set on moving to the Lowcountry for the lifestyle aren’t deterred.
Regardless, buyers, sellers, real estate agents and lenders are getting creative on how to mitigate high mortgage rates.
Mortgage broker and Beaufort Lending owner Benji Gecy said he has families come into his business every day who can’t get approved for a loan because of escalated interest rates and home prices.
“They can’t afford the payment,” he said, explaining right now is one of the tougher markets he’s seen in the 25 years Beaufort Lending has operated in the area. These days, they’re writing fewer mortgages.
Year to date, median home prices in the Beaufort area are up 9% since last year from $365,000 to $398,000, according to the South Carolina Realtor’s reports. In the Hilton Head area, they’re up 8.1% from $471,665 to $509,900, according to the reports.
What type of buyer does it impact the most?
The number of homes, condos and villas sold in the Hilton Head and Beaufort areas is slowing down compared to last year, and it can partially be attributed to higher interest rates, according to real estate and mortgage experts.
For the year so far, year-to-date sales in the Hilton Head area housing market are down 8% from 4,576 last year to 4,208 this year, according to the market reports. In the Beaufort area, they’re down 3.8% from 2,260 last year to 2,174 this year.
However, the data shows the Hilton Head area housing market had an increase of 5.5% more home sales for sales in the third quarter, year-over-year. The Beaufort County housing market had increase of 6.5%. They’re the only two South Carolina markets with an increase in sales third quarter this year compared to third quarter last year. The data showed that the South Carolina housing market had the fewest home sales in a third quarter since 2017.
It could be because while those buying homes to stay in the Lowcountry and veterans with housing allowances are still active in the market while those purchasing investment properties without sizable up-front monies are being pushed out, according to experts.
“It’s shutting them down,” said Realtor Peter Geary at Sea Pines Real Estate’s Harbour Town Cottage Group.
He said in the Hilton Head area, high mortgage rates deter those looking for investment property to earn their money back through rental income or future resale of the property. These properties are mostly shy of $1 million, according to Geary, and investors aren’t able to earn money on them like they used to when the mortgage rate was lower.
For those looking for their forever homes in the Lowcountry, it matters less, according to the Executive Director of the Hilton Head Area Association of Realtors, Jean Beck. She said that may be why, compared to other areas in South Carolina, sales in Hilton Head and Beaufort aren’t down as much — because people are here to stay.
“There is a saying in real estate, and that is marry the house and date the rate,” she said. “If you find the house that you love, mortgage rates can fluctuate, you can always refinance at another time and the mortgage rates go down.”
A different story for military buyers
For veterans taking out VA loans, Gecy of Beaufort Lending said he hasn’t seen much of an impact because of the base housing allowance increase due to the cost of living and interest rates.
“They’re the most active ones in the market because they’re able to get compensated from the government with their housing allowance,” he said.
Regardless, home buyers who don’t have the cash to fully finance a home without borrowing money are seeing impacts.
Realtor Chip Collins at Collins Group Realty said that waiting for a lower interest rate may not be the way to go because homes are more moderately priced to counteract high-interest rates right now. He said there isn’t anywhere on the immediate horizon where interest rates will start to drop down to 5% or 6%, and when they do it’ll be “a trigger point.”
“When we get back to those rates, look out,” he said. “Because the markets going to be hot again.”
What can buyers and sellers do to overcome high mortgage rates?
The reality is that mortgage rates are high, and while buyers and sellers can’t change that there are ways to mitigate the damage to their wallet.
To ensure they’re getting the best rate on their mortgage, buyers should shop around for multiple rates, see if they can re-score their credit score, and look into different types of loans like 3-2-1 buy-downs, according to Gecy of Beaufort Lending.
Some local real estate agents have also seen upticks in seller financing to work around high mortgage rates from traditional lenders.
Shopping around
Not every bank or mortgage broker offers the same rate, so it’s important to shop around with multiple lenders, even if it’s the same type of mortgage.
“It can save you thousands,” Gecy said, explaining that in some cases it’s the difference between buyers being able to quality to purchase a home or not.
Gecy recommends that buyers shop with at least three lenders and have at least one mortgage broker in the mix. Mortgage brokers’ jobs are to connect buyers with potential mortgage loans. They help shop around and weigh loan options. Real estate agents are a good resource for finding lenders.
Mortgage brokers are also sometimes paid commissions by lenders, which may give them an incentive to suggest one lender over the other. If you do your own shopping as well, you’ll better understand if the deal the broker finds is a good one.
Credit re-scoring
A higher credit score gives a lender more confidence that a home buyer will make payments on time and could help buyers qualify for a lower mortgage rate. Therefore, home buyers should make sure their score is as high as it can be, which can sometimes be achieved through re-scoring.
Creditors like mortgage lenders provide re-scoring, but Gecy warns not to let them do a “hard pull,” which would lower home buyers credit scores. Instead, home buyers should ask lenders or their broker to do a soft credit inquiry, which won’t impact credit scores.
Buydown mortgages
Mortgage rates also fluctuate based on what type of loan a home buyer applies for. Gecy said that about 75% of his clients are now participating in 3-2-1 or 2-1 buydown mortgages as a way to buy a home when otherwise the mortgage rates would price them out of the market.
“We’ve seen a big surge in the last 30 days of sellers figuring out the advantage of it,” he said.
With a 3-2-1 buydown mortgage, the home buyer pays 3% less than the normal interest rate in the first year, 2% less in the second year and 1% less in the third year. After the buydown period ends, the home buyer pays the full interest rate for the remainder of the mortgage term. It’s the same idea for a 2-1 buydown mortgage.
Some sellers offer to cover the cost of the buydown, and it’s a way to entice buyers in a tough housing market.
Seller financing
Another way sellers are motivating buyers is through seller financing where instead of a homebuyer getting a mortgage from a bank through a mortgage broker, they lend from the person they’re buying their home from.
“We put (listings) out there seller finance to try to spark it,” Geary of Sea Pines Real Estate said. Sellers will offer lower mortgage rates than a bank or other lender can, and benefit because that way they can sell their home more easily.
Some real estate agents, like Collins, said they haven’t seen much seller financing, but others, like Geary, said that they started to see it in 2022 once mortgage rates started climbing.
