Why Buying a Home Now May Never Be So Easy
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It’s a Great Time to Buy a House. Really.
It’s becoming a common refrain among real estate professionals: “Now is the time to buy.” But some prospective homebuyers may still be skeptical. After all, selling homes is how the real estate business makes money, so they have a vested interest in encouraging hesitant buyers to enter the market.
But the truth of the matter is that now really is an ideal time to make your dream of homeownership a reality. Still sitting on the fence? Keep reading.
Interest Rates Probably Aren’t Going to Get Any Lower
Have you checked the interest rates on a 30-year, fixed-rate mortgage recently? They’re amazingly low.
After the financial crisis, the Federal Reserve slashed interest rates in an effort to stimulate the economy. While the Fed doesn’t actually set mortgage rates, they’re directly influenced by the Federal Funds Rate, which has been maintained at 0 - .25 percent for several years now.
The Federal Funds Rate is the rate that banks have to pay to borrow money from each other. When banks pay more, you do too. Now that a solid economic recovery seems to be taking shape, the Federal Reserve has been hinting at a rate hike, which would cause mortgage interest rates to rise accordingly.
To make a long story short, interest rates have been hovering at historic lows for quite some time, but that’s expected to change pretty soon.
Home Values Are Reasonable But Rising
If you wanted to get a bargain-basement price on a home, you may have missed that boat a few years ago. But while home values have bounced back, they’re still quite reasonable in many markets.
Portland has seen a considerable rise in home prices in its central core neighborhoods. While this may seem depressing to some, it’s not all bad news: if buyers are willing to look out just a bit and into our up and coming 'hoods, then there are still plenty of deals to be had.
Most experts are forecasting continued appreciation in the residential real estate market, and some particularly popular urban metros are already posting big gains. (Cough cough… Portland!)
It seems likely there will come a time in the near future when today’s home values are wistfully looked back upon; a missed opportunity by those who failed to strike while the proverbial iron was truly hot.
Mortgage Insurance Premiums Are Low
If you’re saving up for a down payment, then you’ll want to pay special attention to this information.
According to conventional wisdom, twenty percent is the minimum down payment required to get a mortgage. The thing is, that’s not actually true. In reality, you can get a mortgage with less than 5% down.
There is a nugget of truth to the 20% myth, however: buyers with less than 20% down are required to pay for personal mortgage insurance.
Personal mortgage insurance, or PMI, insures the bank against the possibility that you’ll default on your home loan. With less “skin in the game,” you’re considered to be a higher-risk borrower, which can sometimes matter to a seller in the midst of a bidding war if you’re up against an all-cash offer.
The good news for cash-strapped buyers is that back in January, the Obama administration, by executive action, directed the Federal Housing Administration to chop 50 basis points off the going rate for PMI. Basically overnight, the rate dropped from 1.35% to a mere .85%. That might not sound like much, but for the average first-time homebuyer, it pencils out to a more than $900 savings annually.
And here’s another thing to consider: PMI is only required until your equity reaches 20% of the purchase price of the home. Assuming a history of timely payments, you can request to cancel your PMI. With home values rising as quickly as they are, you could reach that point sooner than you think.
Rents Are Going Up
Unless you reside in a cave or in your parents’ basement, then you basically have two options for having a place to live: buying or renting.
The former is currently quite affordable, but the latter is getting more expensive by the minute. Have you tried to rent a place in cities like Portland or Denver recently? It’s enough to make you slowly shake your head and whistle the way you might if a really nice ’66 Mustang convertible drove by.
One of the best things about owning your own home is that you can lock a big part of your living expenses in at a pretty predictable level. It’s already less expensive to buy in some real estate markets, and it seems a foregone conclusion that any mortgage you take out now will be less expensive than your rent will be in 10 years… maybe even two years.
No Pressure… But Definitely Worth Extra Consideration
We’re not trying to pressure you into taking out a mortgage if you’re not ready, and you shouldn’t rush into homeownership if you can’t afford it.
But if you are ready and you’re just waiting for the perfect moment to leap… right now looks really good from where we’re standing. No matter when you decide to buy, we at Urban Nest wish you the best of luck – it’s truly a momentous occasion!