Is now a good time to buy a home?
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For those of you lucky enough to be in the market for a new home, whether as a first time homebuyer, or looking to upgrade to a larger home, your timing couldn’t be more perfect. Real estate values have plummeted to an unforeseen low – that is bad news for sellers, of course, but it is spectacular news for potential buyers, who have everything to gain by getting in while prices are low.
If you have good credit and your finances are in order, then you may not want to wait much longer to find your dream home. People who might be waiting for the market to hit the bottom thinking that home prices will still come down may be left holding the bag, as some areas have leveled off and have been at the same place for months, while others have already started to inch up in price a bit.
What is the best piece of advice for home buyers today? Do your homework! If the last few years have taught us anything, a buyer should be very cautious and thoroughly understand every aspect of the mortgage they will be obligated to pay.
The absolute best course of action is to seek out a reputable lender and get pre-qualified before shopping for that first house. Most people tend to do the opposite – shop for a home and then try to find a mortgage after they have signed a contract, which can lead to financial pitfalls.
It is best to go house-shopping knowing exactly how much house you can really afford, so “shop the mortgage first, and the home second.” Use the experience and expertise of your lender’s advice serve as a guide to what you can afford, so there will be no surprises.
Another thing to keep in mind while lender shopping – mortgage rates are very attractive right now. The waiting game, just as with house prices, may cost you if you wait too long. Buyers should consider the interest rate as part of the purchase. If mortgage rates were to rise, it would more than negate any further decrease in the home’s value – if that ever does happen. The combination is the key – current low home prices and today’s low interest rates.
Current Mortgage Rates - A Reality Check
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Mortgage interest rates are actually quite low – maybe not an all time low, but loan rates are currently low. As an example, a 30 year fixed mortgage rate is in the 5% range, which is extremely attractive. Many people are under the misconceptions that mortgage rates a year ago were 1%, which of course was not the case.
The problem was with lenders who were promoting “Option ARM” loans that had a very low “introductory rate” of say 1% – 2% for a few months, with a stable low payment for 1 year. This type of loan, however, creates negative amortization, where the difference between the payment rate (1-2%) and the actual rate (8%) is added back to the principal of the loan.
The loan had the illusion of low interest and a low payment, but that illusion was not real, even though the payment rate was low the interest rate was very high. When you compare that “deal” to the current fixed rate in the low 6% range, the fixed rate mortgage is clearly a better loan.
The good news about today’s low mortgage rates is that for the hundreds of thousands of people who have those hybrid ARMs that are scheduled to adjust this year, they may be in for a pleasant surprise. Many people are finding that their rates have fallen instead of increasing, as previously feared.
Those who do not want to live with the uncertainty of their ARM – they are considering refinancing to a fixed rate mortgage while the rates are low. Even if your adjustable rate mortgage is going to adjust to a rate lower than the current fixed mortgages, you can certainly buy yourself some peace-of-mind by opting for the low fixed rate mortgage.