Suze Orman Says Home Buyers Are Facing an 'Affordability Whammy.' Here's How to Make the Most of Your Home Purchase

It's definitely a hard time to be a buyer.

In 2021, many buyers had no choice but to pause their house hunting as home prices soared. This year, home prices remain high. But whereas mortgages were quite affordable last year, this year, rates have risen sharply. And now, buyers are stuck in a really tough spot.

Recently, in a LinkedIn post, financial guru Suze Orman acknowledged that home buyers are facing a "double affordability whammy." And that's a situation unlikely to change anytime soon. 

The housing market is still tough to crack

There have been signs over the past few months that the housing market is shifting in buyers' favor. Home price gains have been slowing and inventory has slowly been increasing. 

But we'll need a lot more homes than the current number available for sale to create an equalized housing market that doesn't give sellers a clear advantage over buyers. And until that happens, home prices are likely to stay elevated.

Meanwhile, mortgage rates are unlikely to come down anytime soon. If anything, they could increase.

The Federal Reserve is still intent on battling inflation. To do so, it's implementing interest rate hikes that are driving the cost of borrowing up across the board. 

As such, we should not expect buyers to get a break on mortgage rates in the near term. And the combination of higher home prices and mortgage rates could force many buyers to put homeownership plans on hold until 2023 -- or even beyond.

How to navigate today's market

Some of today's buyers may not want to wait to purchase a home. If you're going to try to move forward with a home purchase despite the aforementioned housing market conditions, Orman has a warning -- don't be lured into signing an adjustable-rate mortgage, or ARM, without understanding the risks. 

More buyers have been drawn to ARMs recently since they allow you to lock in a lower interest rate initially compared to a 30-year fixed mortgage. But there's a danger in getting an ARM. Your interest rate could climb a lot over time, leaving you on the hook for higher monthly mortgage payments than what you can comfortably afford. 

And if your plan is to sign an ARM and then refinance that loan once your rate starts climbing, just know that may not be an option. Not only might you struggle to qualify for a refinance if your credit isn't great, but if rates are high across the board, you may not reap any savings. 

Of course, it's also worth noting the rate on an ARM has the potential to decrease over time. But if you don't want to take on the risk of higher mortgage payments, you're better off signing a fixed-rate loan and, if anything, looking into refinancing that mortgage down the line. 

What’s more, if you can swing higher monthly payments on a mortgage, you may want to consider getting a 15-year loan, as you'll generally be rewarded with a lower interest rate. This may not be an option for every buyer given how high home prices are today. But it's an option you can consider if you're in a strong place financially.