Buying a home is always a good investment. Unless of course you bought right before the housing crisis and watched your investments deflate right before your eyes. As the economy recovers, investing in homes is becoming a better option every day. In fact, 2017 may be one of the best years to buy a home. Here are several reasons why you should consider it this year.
Homes Gaining Value
It seems like homes everywhere are finally making a real comeback. Values are back where they are supposed to be. In fact, values are expected to continue to rise even higher. That being said, buying a home now could net you a nice profit down the road. If you wait too long, though, prices may increase enough that it could be hard for you to purchase a home. Do not wait until prices become unaffordable. Get in on the investments now, while you can.
Baby Boomers Selling
Many baby boomers are relocating. They are either selling to downsize or even to move into long-term care facilities. Because of this, many homes that were otherwise unavailable will be on the market this year. With rising values, baby boomers are jumping at the chance to make a profit on their lifelong home while making the most of their future. While inventories are higher, prices will remain stable. As inventories dwindle, you can expect prices to increase.
Credit may be Easier to Obtain
With a new president, come new rules. The Dodd-Frank Act may seem some pretty hefty changes under President Trump’s ruling. What this means for you is simpler guidelines. Banks are held by pretty tight restrictions right now. This makes them turn down many borrowers who might just be a good candidate for a loan. This change may not happen overnight, but watch for it as it becomes easier to obtain a mortgage and therefore purchase a home.
Rising Interest Rates
You might think rising interest rates is a reason not to purchase a home in 2017. After all, it will make your mortgage payment higher. However, higher interest rates can bring many benefits with it. Among them, there will be fewer bidders. This means you may have more homes available to you. You may also have fewer issues with bidding. With fewer bidding wars, you may be able to pay less for a home than you would if mortgages were easy to obtain. While a 0.5% difference in an interest rate will likely affect your mortgage payment by less than $100, it will still chase other bidders away.
Housing Shortages are Beginning
Unfortunately, our population is increasing at intense rates. What is not increasing at the same rate is the housing industry. With fewer houses built compared to the increase in population, housing may become scarce. While this has not happened yet, it is bound to happen in the years to come. Before it begins, buy a home in 2017 when things are still easy and inventory is abundant. This way you will not be affected by the housing shortage in the future.
Rent is Increasing
Another expense that continually increases is rent. In fact, studies show that renting is more than 35% more expensive than buying a home. Rent also goes up every year with inflation. If you have a fixed rate mortgage, your payment does not change. This means you do not have to adjust your budget or figure out a way to afford your higher rent payment. Rent also does not provide you with any type of return on your investment, like owning a home does.
Many Mortgage Programs Available
It used to be that you only had conventional financing to use to buy a home. This usually meant a 20% down payment. On a $200,000 home, this means $40,000. That is not chunk change! Today, however, there are many mortgage programs available. Even if you went the conventional route, you may qualify for a program with just 5% down. If you do not qualify for conventional financing, there are many other options today, including FHA, VA, and USDA loans. Each of these programs are government-backed programs. FHA loans require as little as 3.5% down and the VA and USDA loans do not require any down payment.
With the availability of mortgage programs, you have many more options at your disposal. You no longer have to worry that you do not have a huge down payment. You also do not need perfect credit or low debt ratios. Many government-backed programs have very lenient guidelines that enable you to qualify for financing today.
Whether you are in the market for a primary residence or investment home, there are many opportunities out there for you today. You have to get out there and seize them. Find a lender and get a preapproval. You can go over the many loan options with your lender to see which best suits your needs. FHA and USDA loans offer many opportunities for borrowers with less than perfect credit and little money to put down. Borrowers with a little money to put down and good credit may benefit from conventional financing. You won’t know which program suits you until you apply, though.
Should I Buy a House Now?
While home values and interest rates have risen reasonably over past few years, still they are quite low on a historical basis. Considering these favorable factors, home affordability is the best it’s been in quite a long time. Whether or not you should buy a house now depends on your current financial situation, goals, and what’s happening in your local real estate market.
Owning a home is a big financial commitment, so it’s important to make sure that it fits into your long term financial goals and you’re ready to take on the added obligations of home ownership. Not only will you be responsible for paying for your mortgage, you’ll also be paying for property taxes, homeowners insurance, repairs, and maintenance – as well as keeping up with your other expenses.
When you become a homeowner, you’re investing in and committing to a local community as well as establishing an important business relationship with your lender. These are not easy commitments to break away from later on, so you want to make sure you’re ready to make these commitments before deciding to buy a home.
Some Things to Keep in Mind
Before taking the plunge on a home purchase, you have to carefully think about your plans for the coming years, do some homework on the real estate market where you’re planning to buy, and evaluate your finances. The following are a few considerations that should be kept in mind as you evaluate whether or not you should purchase a home:
Do I plan to keep the new home for at least 3 to 5 years?
If you think you’ll only live in the home for just a few years, it may not be worth buying until you plan to be more permanent. It can cost 2% to 6% of the price of the home to buy and sell, plus you’ll be paying for property taxes, insurance, and maintenance. If you’re planning to be more temporary, it may make more sense to rent and not be locked into home ownership.
Is buying a home cost-effective compared to renting?
A good rule of thumb for deciding whether to rent or buy is the buy-rent ratio. If you divide the typical purchase price of a home by what it would likely rent for and come up with a number around 15 or below, then purchasing probably makes more sense than renting. If the buy-rent ratio is well above 20, then renting is more cost-effective than owning.
Is the local real estate market relatively stable?
Though home prices overall have corrected significantly since the housing bubble, there are still many areas of the country where home values are a bit inflated. It’s important to take into account the stability of your local market before you buy a home.
If you plan to never move out of the area, the ups and downs in home values probably won’t matter that much to you. But if you think you’ll move within 5 years, it’s important to consider the stability of the market when making a purchase decision.
It’s also advisable to consult local real estate professionals in your target market to help determine the stability of the market. Keep in mind their ultimate goal is to get you to buy a house through them, so they may tend to be a little rosy in their projections.
Am I financially strong enough to purchase a home?
This is probably the most important question you should ask before you consider buying a home. As I’ve already mentioned, owning a home is a big commitment and one you can’t easily get out of in a hurry. The recent epidemic of foreclosures is a stark reminder of the risks involved in buying a home with tight or shaky finances.
Before you buy a home, it’s important to take a hard look at your finances and make sure you are truly in a position to comfortably afford it. Are you carrying a lot of debt, or is your income a little shaky? Do you have other obligations now or in the future that could make it tough to keep up with mortgage payments and the maintenance on a home? These are questions to keep in mind when evaluating your financial ability to own a home.
If you’re not yet in the financial position you should be, then it may be prudent to delay your plans till a better time.
Will I be able to keep up with my payments if I lose some or all of my income?
It’s a turbulent job market these days, so it’s important to consider what could happen if your income is cut or lost altogether. Are your finances so tight that you have no tolerance for even a modest cut in your income? If so, it might not be the best idea to buy a home until you reduce your obligations or increase your income. You don’t want to put yourself at risk of foreclosure, which can cause enormous stress, cost you all the investment you’ve made in your own, and severely damage your credit for many years to come.
Can I get a reasonably good mortgage deal with my current qualifications?
If you’ve had some ups and downs with your credit, it may pay to rebuild your credit first, then buy a home. Your credit is a big part of your mortgage qualifications and having bruised credit could end up costing you thousands (or even tens of thousands) in added costs over the life of a home loan. It doesn’t necessarily take long to rebuild your credit, and the extra effort could help you get a much better mortgage deal that could save you thousands in interest over the life of the loan.
If you have strong a strong financial profile, reasonably good credit, and are planning on sticking around in the home for a while, then it may be a great time to buy a home right now. Falling home prices and low mortgage rates have made homes more affordable than they’ve been in years.
However, if it’s a stretch to buy a home and you have shaky qualifications, now is probably not the time – at least not yet. Take the time to better your financial profile first, and then when you’re ready to buy a home, it will be much more enjoyable for you.
Before you decide to buy a home in 2017, take the time to get pre-approved. This can help you see where you stand with the lenders. You should also shop around with different lenders. See what they have to offer you. Some are stricter than others. Shopping around and comparing not only rates, but fees too, will help you figure out the best way to go. In the end, you come out the winner if you buy a home in 2017 – do not wait until it is too late!