your housing expense will increase if a mortgage is necessary to buy your next home. Here are four great reasons to consider buying a home today instead of waiting.
CoreLogic’s latest Home Price Index reports that home prices have appreciated by 7.2% over the last 12 months. The same report predicts that prices will continue to increase at a rate of 4.7% over the next year. The bottom in home prices has come and gone. Home values will continue to appreciate for years. Waiting no longer makes sense.
Freddie Mac’s Primary Mortgage Market Survey shows that interest rates for a 30-year mortgage have remained around 4%. Most experts predict that they will begin to rise over the next 12 months. The Mortgage Bankers Association, Fannie Mae, Freddie Mac & the National Association of Realtors are in unison, projecting that rates will increase by this time next year. An increase in rates will impact YOUR monthly mortgage payment. A year from now.
There are some renters who have not yet purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent-free, you are paying a mortgage - either yours or your landlord’s. As an owner, your mortgage payment is a form of ‘forced savings’ that allows you to have equity in your home that you can tap into later in life. As a renter, you guarantee your landlord is the person with that equity. Are you ready to put your housing cost to work for you?
The ‘cost’ of a home is determined by two major components: the price of the home and the current mortgage rate. It appears that both are on the rise. But what if they weren’t? Would you wait? Look at the actual reason you are buying and decide if it is worth waiting. Whether you want to have a great place for your children to grow up, you want your family to be safer or you just want to have control over renovations, maybe now is the time to buy. If the right thing for you and your family is to purchase a home this year, buying sooner rather than later could lead to substantial savings.
The results of the latest Rent vs. Buy Report from Trulia show that homeownership remains cheaper than renting with a traditional 30-year fixed rate mortgage in the 100 largest metro areas in the United States.
The updated numbers actually show that the range is an average of 17.4% less expensive in Honolulu (HI), all the way up to 53.2% less expensive in Miami & West Palm Beach (FL), and 37.7% nationwide!
Other interesting findings in the report include:
Interest rates have remained low and, even though home prices have appreciated around the country, they haven’t greatly outpaced rental appreciation.
Home prices would have to appreciate by a range of over 23% in Honolulu (HI), up to over 45% in Ventura County (CA), to reach the tipping point of renting being less expensive than buying.
Nationally, rates would have to reach 9.1%, a 145% increase over today’s average of 3.7%, for renting to be cheaper than buying. Rates haven’t been that high since January of 1995, according to Freddie Mac.
Buying a home makes sense socially and financially. If you are one of the many renters out there who would like to evaluate your ability to buy this year, let's get together to find your dream home.
Every quarter, the Federal Housing Finance Agency (FHFA) reports on the year-over-year changes in home prices. Below, you will see that prices are up year-over-year in every region.
Looking at the breakdown by state, you can see that each state is appreciating at a different rate. This is important to know if you are planning on relocating to a different area of the country. Waiting to move may end up costing you more!
As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As a buyer, however, you must not be concerned about price, but instead about the ‘long term cost’ of the home.
The Mortgage Bankers Association (MBA), the National Association of Realtors (NAR) and Freddie Mac all project that mortgage interest rates will increase by this time next year. According to CoreLogic’s most recent Home Price Index Report, home prices will appreciate by 4.7% over the next 12 months.
What Does This Mean as a Buyer?
If home prices appreciate by the 4.7% predicted by CoreLogic over the next twelve months, here is a simple demonstration of the impact an increase in interest rate would have on the mortgage payment of a home selling for approximately $250,000 today:
In this day and age of being able to shop for anything anywhere, it is really important to know what you’re looking for when you start your home search.
If you’ve been thinking about buying a home of your own for some time now, you’ve probably come up with a list of things that you’d LOVE to have in your new home. Many new homebuyers fantasize about the amenities that they see on television or Pinterest, and start looking at the countless homes listed for sale with rose-colored glasses.
Do you really need that farmhouse sink in the kitchen in order to be happy with your home choice? Would a two-car garage be a convenience or a necessity? Could the man cave of your dreams be a future renovation project instead of a make or break now?
The first step in your home buying process should be to get pre-approved for your mortgage. This allows you to know your budget before you fall in love with a home that is way outside of it.
The next step is to list all the features of a home that you would like & to qualify them as follows:
‘Must-Haves’ – if this property does not have these items, then it shouldn’t even be considered. (ex: distance from work or family, number of bedrooms/bathrooms)
‘Should-Haves’ – if the property hits all of the ‘must-haves’ and some of the ‘should-haves,’ it stays in contention, but does not need to have all of these features.
‘Absolute Wish List’ – if we find a property in our budget that has all of the ‘must-haves,’ most of the ‘should-haves,’ and ANY of these, it’s the winner!
Having this list fleshed out before starting your search will save you time and frustration, while also letting your agent know what features are most important to you before he or she begins to show you houses in your desired area.
Fannie Mae’s article, “What Consumers (Don’t) Know About Mortgage Qualification Criteria,” revealed that “only 5 to 16 percent of respondents know the correct ranges for key mortgage qualification criteria.”
Fannie Mae’s survey revealed that consumers overestimate the down payment funds needed to qualify for a home loan. According to the report, 76% of Americans either don’t know (40%) or are misinformed (36%) about the minimum down payment required.
Many believe that they need at least 20% down to buy their dream home, but many programs actually let buyers put down as little as 3%.
On the right are the results of a Digital Risk survey of Millennials who recently purchased a home.
As you can see, 64.2% were able to purchase their home by putting down less than 20%, with 43.8% putting down less than 10%!
The survey revealed that 59% of Americans either don’t know (54%) or are misinformed (5%) about what FICO® score is necessary to qualify.
Many Americans believe a ‘good’ credit score is 780 or higher.
To help debunk this myth, let’s take a look at Ellie Mae’s latest Origination Insight Report, which focuses on recently closed (approved) loans.
As you can see on the right, 54.7% of approved mortgages had a credit score of 600-749
Whether buying your first home or moving up to your dream home, knowing your options will make the mortgage process easier. Your dream home may already be within your reach.
In many markets across the country, the amount of buyers searching for their dream home greatly outnumbers the amount of homes for sale. This has led to a competitive marketplace where buyers often need to stand out. One way to show you are serious about buying your dream home is to get pre-qualified or pre-approved for a mortgage before starting your search.
But even if you are in a market that is not as competitive, knowing your budget will give you the confidence to know if your dream home is within your reach.
Freddie Mac lays out the advantages of pre-approval in the ‘My Home’ section of their website.
“It’s highly recommended that you work with your lender to get pre-approved before you begin house hunting. Pre-approval will tell you how much home you can afford and can help you move faster, and with greater confidence, in competitive markets.”
One of the many advantages of working with a local real estate professional is that many have relationships with lenders who will be able to help you with this process. Once you have selected a lender, you will need to fill out their loan application and provide them with important information regarding “your credit, debt, work history, down payment and residential history.”
Freddie Mac describes the 4 Cs that help determine the amount you will be qualified to borrow:
Getting pre-approved is one of many steps that will show home sellers that you are serious about buying and it often helps speed up the process once your offer has been accepted. Many potential home buyers overestimate the down payment and credit scores needed to qualify for a mortgage today. If you are ready and willing to buy, you may be pleasantly surprised at your ability to do so as well.