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Although mortgage rates have stayed below 7% for the past few months, some prospective homebuyers are still staying away from making that purchase as rates are starting to creep up again.

On January 5, 2023, Freddie Mac reported that the 30-year fixed-rate mortgage rate is at 6.48%, up from 6.42% the previous week. It was the second straight week of increases after six weeks of declines.

For those who are looking to buy a home in this turbulent economic climate, Levi Kushnir, President, Stable Holdings Inc., recommends that prospective homeowners consider taking out an interest-only mortgage loan. “Your payments will initially be lower than if you took out a traditional mortgage,” he says. “This can enable you to ease your way into your home, albeit at a higher rate.”

In an interest-only mortgage, the borrower spends a predetermined period of time paying the interest only, then spends the rest of the term paying off the principal and the interest. If they wish, they can pay off the balance in one lump sum.

Another advantage, Mr. Kushnir says, is that the payments on the interest are completely tax-deductible, but that is only applicable to the primary residence.

Interest-only mortgages are ideal, not only for homeowners, but for real estate investors as well. “Investors who use interest-only mortgages when buying properties can use the money they save on the monthly payments to make repairs and buy more houses to build up their portfolios,” Mr. Kushnir says.

Mr. Kushnir can speak from experience, as he has used interest-only mortgages to buy several  of his own investment properties. The experienced real estate investor, who has been in the business since he was 18 years old, got his start in the mortgage lending business and later bought his first house at the age of 19. Since then, he has raised and invested tens of millions of dollars in real estate properties.

While paying only the interest for the first few years sounds attractive, he says there are a few drawbacks with this niche mortgage. “First, you won’t be building any equity in your home as you pay,” Mr. Kushnir says. “Second, once the interest-only period is complete, the payments increase substantially as you now have the absent years of principal ballooned into the remaining years in addition to the interest you have to pay. That would be a bad time to find out that you don’t have the money to make the higher payments.”

Buying a house “as is” might be a fast track to the dream of homeownership, but the unknowns that may come with it can become a nightmare. Levi Kushnir, President, Stable Holdings, says there are some things people need to know before making that purchase.

The main advantages of buying a house in its current condition are that the price will be lower than other houses that are in better shape and there are fewer people interested in the house. “You’re not going to have to compete with the typical bidders over how much you want to pay for the home,” he says. “There is way less competition.”

However, Mr. Kushnir says, the disadvantages of buying such a house are the quick turnaround time and the unpleasant surprises the homebuyer may face. “When you buy a house as is, there are going to be unknowns, and the seller may be anxious to sell and is usually pressed for time,” he says. “You won’t have the time to apply for and secure a traditional mortgage.”

When people look to buy a house that is in less-than-perfect condition, they believe they are buying for the same reasons as a “fixer-upper,” but Mr. Kushnir says that is not the case. “With an as-is house, the seller is usually in some sort of situation and needs to sell the house quickly,” he says. “With a fixer-upper, the owner may just sell the house because they gave up on doing the renovations themselves or the contractors took too long. In either case, the house would need significant repairs.”

Mr. Kushnir says that, by law, the seller should disclose to the buyers of any lead paint in the house, as well as any structural or other problems with the house, according to the Property Condition Disclosure Act (PCDA). “The PCDA requires the seller to list anything that may be defective with the property prior to closing,” he says. “Should it be discovered that it was not discussed and resolved prior to closing, it is possible the seller may be held liable for damages incurred by the buyer.”

To avoid such legal problems, Mr. Kushnir says, the seller will offer a $500 property disclosure credit. “By doing this, the seller can completely avoid having to go through the process by trying to list every single possible defect there may be with the home, thus avoiding a lot of liability or recourse,” he says.

Finally, Mr. Kushnir says, when ordering an inspection on an as-is house, some sellers may not even allow this. “Should you be allowed to, do not expect any price reductions or any credit at closing for any problems or defects found at this inspection,” he says. “This inspection is solely for the purpose of the buyer knowing the ins and outs of the property, but it is likely that if you nickel-and-dime your seller, he will see that you are not a real as-is buyer and will refuse to deal with you.”

In an effort to help those who are buying a house for the first time, but cannot afford a conventional mortgage, President Joe Biden is proposing cutting insurance premiums on new Fair Housing Administration (FHA) loans.

While some say this will help prospective buyers achieve their dreams of homeownership, others believe this will continue to push home prices to record highs. Levi Kushnir, Founder/Owner, Stable Holdings, says the proposed savings on the insurance premiums is a paltry amount and, therefore, will not help low-income homebuyers in the long run.

President Biden recently introduced a plan in which insurance premiums on mortgages insured by the FHA would be cut. Those in the mortgage industry are seeking a reduction of $50 to $70 a month for new borrowers, but the FHA said any cut the agency proposes would be less than that. This proposal comes as median home prices exceeded $400,000 for the first time this year in May and the 30-year fixed-rate mortgage rate was 5.7%

Mr. Kushnir says the savings are negligible and would be wiped out by any mortgage rate increases. “For the typical homeowner, $70 a month is nothing,” he says. “This proposal is not going to save anyone any money. The facts of the matter are interest rates have gone up a lot more than the proposed premium cuts would be, the cost of living is becoming more expensive, and people just don’t have the same amount of money they used to have to spend on a home.”