[ad_1]
Should I buy a house now?
It’s no secret that the housing market is hot right now. Still, that hasn’t stopped homebuyers.
Despite rising house prices, low supply and near constant bidding wars, Americans are buying homes in record numbers. According to the National Association of Realtors, more homes were purchased in 2020 than any year since 2006.
Should you follow suit and buy your dream home now? Or does it make sense to wait until the market has cooled down? Let’s dive in.
Check your eligibility to buy a home (July 12, 2021)
In this article (Skip to …)
Benefits of buying a house in 2021
It may seem like today’s real estate market is all bad news: rising prices, falling affordability, etc. But there are definitely some advantages to buying a home right now.
Low interest rates increase affordability
On the one hand, mortgage rates are low. According to Freddie Mac, interest rates on 30-year loans were on average 2.96% in May 2021. Just two years ago? This average was well above 4%.
Economists expect rates to continue rising this year and next. They could exceed 3.25% or even 3.5% by the end of the year.
Suppose you buy a house worth $ 400,000. With a down payment of 20% ($ 80,000), you have a mortgage loan of $ 320,000.
Here’s how your savings might compare to today’s low mortgage rates compared to projected rates for late 2021:
| Amount of the loan | $ 320,000 | $ 320,000 |
| 30-year fixed rate1 | 2.96% | 3.50% |
| Monthly mortgage payment | $ 1,340 | $ 1,440 |
| Total interest paid (30 years) | $ 163,200 | $ 197,300 |
1Interest rates are for illustrative purposes only. Your own mortgage rate will be different
The result is a more affordable monthly payment, lower long-term interest charges, and a larger home purchase budget (or, often, all three).
Rising home values ​​create equity
Buying now also allows you to take advantage of record growth in home prices.
Prices have risen by more than 15% in the past year, offering even newer owners serious profits when they decide to sell. Buying now would give you a chance to capitalize on this growth and really build your capital quickly.
There are many mortgage options
Buyers today can choose from a wide variety of no-down or low-down mortgage options to make home buying more affordable.
Yes, you may have to pay for private mortgage insurance (PMI) if you put less than 20 percent. But that’s not always a bad thing.
Putting in less money can help you buy sooner and take advantage of rising home values, rather than waiting to save 20% and chasing higher purchase prices later.
And, it saves you more money on closing costs, home repairs, emergency funds, and other expenses that are sure to come up for a new homeowner.
Check your eligibility to buy a home (July 12, 2021)
Disadvantages of buying a house in 2021
The disadvantages of buying a home in today’s market are many.
Low level of stocks
The inventory is extremely low which means slim choices and a very high rate of bidding wars. This drives up house prices and makes buying a home – not to mention buying a home – even more difficult.
In a seller’s market like this, it’s common for bidders to exceed the asking price. And you may need to do the same if you are hoping to get a new home this year.
Competition from spot buyers
On top of that, there is also a serious increase in the number of cash buyers to be concerned about.
These can be very tempting for home sellers, offering a sure-fire sale, quick close, and other practical benefits, especially over mortgaged deals.
Unfortunately, according to ATTOM Data Solutions, cash offers now represent more than a quarter of all home purchases.
But that doesn’t mean mortgage borrowers are out of luck. There are several strategies you can use to compete with a cash offer. At the end of the day, the vast majority of buyers are still using a home loan – and so are you.
Stricter mortgage standards
Mortgage lenders have raised the bar for home buyers during the coronavirus pandemic.
Due to the increased financial risks, lenders wanted to see higher credit scores, larger down payments, and often substantial cash reserves in order to qualify for a mortgage. This has made it more difficult for many first-time home buyers to obtain a home loan.
These standards are starting to relax as the pandemic subsides. But mortgages are still not as easy to find as they were in early 2020.
On top of that, some sellers are less likely to accept FHA and VA loans these days. So, if you are considering using this type of financing, hire a rock solid real estate agent and loan officer to help make sure the deal goes through.
Is it cheaper to buy a house or to rent?
Buying a home now is not the right choice for everyone. In many parts of the United States, renting a home is actually more affordable than buying one.
On average, the cost difference between buying and renting is around $ 600 per month, according to a recent study. In some markets, it can be as high as $ 1,200.
In addition, house prices are also rising faster.
As rents begin to recover after falling amid the pandemic, home prices have jumped more than 15% in the past year alone, far more than the 5% growth rate seen on properties. single-family rental.
Of course, this is not universal.
The comparison depends on local home prices, location, and the size of the property you are considering. So be sure to use the numbers for your market before making your decision. A good real estate agent can help you here.
And keep in mind that leasing doesn’t offer a return on your investment.
While higher mortgage payments make home ownership more expensive, some of that money goes back to your pocket in the form of home equity. Renting, on the other hand, does not generate any return for the tenant.
So, rather than just looking at costs, be sure to factor in your long-term financial goals. Will buying a home help you get there?
Who should buy a house now?
Still not sure if buying a home is the right decision in today’s real estate market?
The best decision really depends on your budget, your professional situation and where you are located.
Generally speaking, buying a house (at least at the moment) is best reserved for people who meet at least one of these conditions:
- Having the budget to pay above the asking price, which is often necessary to win a bidding war
- Are able to pay cash for the purchase of their home
- Live in an area with low demand for home purchases and more manageable prices
- Work from home and have the opportunity to move to a lower cost housing market
- Are willing to consider distressed properties (not those that are ready to move in) that may require a little more work
If you don’t fit into any of these categories and are considering buying a home, talk to your financial advisor first. They can help you make the right decision for your personal finances and budget.
Who has to wait for next year?
If you are truly determined to buy a home, there are ways to do it.
Still, it might not be the best solution if you fall under one of these umbrellas:
- You would need to really stretch your budget to afford today’s prices
- You should buy a house that does not meet your needs or that would require too much sacrifice because of the price
- You can’t qualify for a good mortgage rate, which would mean paying even more for your home in the long run
- The market in which you want to buy is particularly hot or competitive, which means it would be very difficult to find a home that you can afford.
In the above scenarios, it might be better to wait for the current real estate boom.
At some point, home prices will stabilize and competition will decrease. This will make it easier both to find accommodation and to stay within your budget.
How to know if you should buy a house in 2021
If you are considering buying a home in today’s crazy market, be sure to carefully consider your budget, local home prices and availability, and your needs as a buyer.
If you’re not sure what the best shot is, consult a pro. Your financial advisor, loan officer, local real estate agent, or tax advisor can all help you make the right decision for your household.
Check your new rate (Jul 12, 2021)
[ad_2]
