Is it time to buy a home? Certainly, if you need one, this is the time. In fact, in my 39 years in the business, I’ve never seen a better time. The combination of low home prices and record-low interest rates make the cost of owning a home very attractive. Even people like John Talbott and Warren Buffet say this is the time to buy.
Some of you could be waiting to purchase a home because you think prices might drop. Certainly there are no guarantees. But I think the odds stand against further devaluation of homes. Over the last several months, we’ve seen the median price point move up. The inventory of houses on the market is about half of what it was two years ago. As long as demand holds steady, a smaller supply by itself will begin to push prices up.
The more important thing to look at is what could happen to interest rates. We’re already seeing a slight uptick since the first of the year. If you’re like most of us and need to finance your home purchase, the prospect of the interest rate rising versus the home price rising is the more essential element. Some might remain hesitant to buy because they think home prices could drop another
5 percent to 10 percent. But what they’re really risking is interest rates won’t move up. If the interest rate moves up from it’s current 3.5 percent to say 5 percent (still an attractive rate), in dollars that’s close to a 42 percent increase in your monthly mortgage payment.
It’s anybody’s guess where rates are going, but simple economics says they’re heading up. From a financial perspective, upward pressure on prices and interest rates make now a good time to buy a home.
But what other reasons are there to buy a home? According to the results of a recent national survey conducted by the Federal National Mortgage Association, 30 percent of those who responded said they wanted a good place to raise children, 79 percent said they want a place where their families feel safe, 24 percent said they want more living space and 20 percent said they want a home because of control over their living space. These are all strong and convincing reasons to buy a home.
One of the most important things to do early in the home purchase process is to visit with your favorite lender. A lender will let you know what monthly payment you can qualify for and give you a price range of homes you can comfortably afford. It’s important to evaluate your priorities and define your own comfort zone for the size of your monthly payment.
Here are some helpful hints to keep in mind if you’re going to borrow money to purchase a home:
- Don’t deposit large amounts of cash into your savings account. Small, explainable deposits are fine. But depositing $10,000 from your parents as a gift in cash is not. Your lender will discuss with you the proper way to track your assets.
- Don’t make large purchases like a new car or a lot of new furniture ahead of your home purchase if these add to your monthly debt obligation. New obligations create new qualifications and could mean the difference in qualifying to purchase that new dream home.
- Don’t co-sign on loans for others. When you co-sign, you’re as obligated as the primary borrower, and the lender could count those payments against you.
- Don’t change bank accounts. It’s easier for the lender when there’s a consistency of accounts to track.
- Don’t apply for new credit. When you apply for new credit, even a credit card, a credit report will be run. Simply running the credit reports could affect your credit score, interest rate and even eligibility.
- Don’t close any credit accounts. Many people believe that having less available credit makes them less risky and more likely to receive approval for a home loan. Wrong.
A major component of your credit score is not just your payment history, but the length and depth of your credit.
The best advice is to fully disclose and discuss your plans with your lender. Here at Bray and Co., we’re fortunate to have access to a full-time staff of lenders to assist buyers. They can offer you a lot of good preliminary advice at no obligation or cost. Again, it’s very important to involve your lender early on in your home search.
I would be remiss not to suggest it’s also vital to choose your real estate agent wisely because they become your partner in the home-buying process. Even with all the information available to buyers online, a good agent is essential to guide you through the process and advocate for your needs.
So is it the right time to buy a home? I sure think so.