Do Interest Rates Have You Worried About Buying a First Home?
Did the recent interest rate hike news cause any delay to your plans to house hunt? Are you wondering – given the rate increase and current market turmoil – if this is really the right time to purchase a first home, or if renting makes more sense for you right now?
Actually, the exact opposite happened. Rates actually fell from 2.3% to 1.55% on the US 10-year treasuries (a common indicator of how mortgage rates are priced), their lowest point since September 2012. If you already own a home with an ARM or 30-year fixed mortgage, this is also a good time to refinance or reduce debt at these low rates.
Remember a house or condo is both a home and an asset that can appreciate over time. No matter what they’re saying on the news, what’s important is what makes sense for your finances, based on your goals and what’s happening in your local housing market.
Here are a few things to consider:
Evaluate your current circumstances:
- What would your mortgage payment be in relation to current rent? A good rent-versus-buy calculator can be found at Realtor.com
- Do you plan to be in the area for 5 years or more? The housing market will fluctuate. If you need to sell quickly, you may have to sell for less than desired, whereas a booming market can provide quick sales for a profit.
- Can you afford the additional costs? The cost of home ownership is more than just the mortgage payment. There are taxes, insurance and sometimes homeowner’s dues that need to be considered, not to mention upkeep, repairs, upgrades, and furniture!
Assess Your Finances:
- Have a good understanding of what your assets and liabilities are.
- Consider what you can afford. Being house poor and unable to save for emergencies, retirement, college or other financial goals can create a stressful situation.
- Speak with a lender about which programs you may qualify for; what a lender will approve you for and how much you can afford may not be the same thing.
- Take a look at your credit report. AnnualCreditReport.com offers a free credit report from all three credit bureaus. Get one from each bureau and check it for accuracy.
- Meet with a financial advisor to strategize your financial planning Is it better to make a higher down payment, pay down debt to get your debt to income ratios lower? Or is it better to leave the money invested so the lender includes this in your financial reserves?
Get Pre-approval:
- Your chosen lender will review your financial information and credit, then make an assessment about how much home you can buy, what down payment is required, and the best loan program. The lender then provides a preapproval letter.
- A second option is having an underwriter review your completed file, evaluating your income, credit, and financial assets, then providing a pre-approval letter. Having an underwriter review your file may require application fees and other costs to be paid up front.
Contact a real estate agent:
Start your search online to help narrow down location and potential neighborhoods. This can save time (and therefore money) by giving you a sense of where you want to live and what is available in your price range.
- Pay attention above all to location: be sure you are within an acceptable commute to work, schools and other activities that you will be involved in on a regular basis.
- Consider resale value: do not buy the most expensive home in the neighborhood.
- Consider how you want to use your financial resources: fixer-uppers are the best bargains but take both cash and time to complete.
Buying a home is an exciting decision and can result in a solid investment that appreciates over time. Whether or not this is the right moment to purchase is something you should evaluate carefully with your financial advisor, based on your current financial plan and your long-term goals, not based on the news or economic “predictions.”
While interest rates may have risen slightly they are still at historic lows, so don’t miss out the opportunities that a low-interest rate environment offers homeowners and prospective homeowners.
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