RIGHT TIME??? WHEN???
Is it the right time to buy a house? Is it the right time to sell? How do you
know when to jump into the real estate market? The answer is....it depends.
There's no single answer that applies to everyone. A host of factors come into
play, including the economy in general, whether home prices are rising or
falling, the inventory of available homes, and the state of your own financial
outlook. If you're thinking about buying or selling a home, here are some
factors to consider.
For buyers:
Improving Economy, Rising Prices, and Eager Buyers:
The rebound in
the economy means more competition for homes because people who have been
renting or staying put in their homes are now jumping into the housing market.
This translates into quick turnover on home sales, multiple bids, and sometimes,
buyers bidding over the asking price. The boost in housing prices is also
fueling competition from buyers who want to get into the market before prices
get too high. Even though prices are rising, many still consider some homes
underpriced since prices had dipped so low. And buyers are looking to make a
move while houses are still relatively a good deal.
FHA Fee Changes:
Loans through the Federal Housing Administration
(FHA) were historically the best bet for people with low to moderate incomes and
not much money to put toward a down payment. Generally, private lenders require
a 5% down payment, while FHA only requires 3.5%. However, with several changes
to loan terms, FHA may no longer be the smartest option.
FHA loans require mortgage insurance, a fee tacked onto the loan that
provides the lender some protection in case the borrower defaults on the loan.
In the past, the borrower only needed to carry the insurance until the loan
reached 78% of the original loan amount. Under the new rules, the borrower is
required to carry the insurance for the life of the loan.
The cost of mortgage insurance on FHA loans has also been on the rise,
almost tripling since 2008. In 2013, the fee rose to 1.35% of the balance of the
loan. Additionally, FHA loans require borrowers to pay an upfront fee of 1.75%
when getting the loan. Between the upfront fee and the required mortgage
insurance, saving up more for a down payment and getting a private mortgage may
make more financial sense.
Beyond FHA:
Buyers with a low down payment have other options to
consider. Fannie Mae HomePath loans, available only on Fannie Mae-owned
properties, offer low down payments and no mortgage insurance requirement.
Periodically, Fannie Mae also offers special deals in which they cover the
buyer's closing costs. There also loans available to people in various special
circumstances. Veterans, for example, can get VA Mortgages, which offer good
terms, low down payments, and easier qualification requirements. The USDA offers
attractive mortgage terms to moderate-income families buying property in rural
or semi-rural areas.
Check Other Affordability Programs:
The Good Neighbor Next Door
program offers discounts of homes in “revitalization” areas of up to 50% for
qualified fire fighters, law enforcement officers, EMTs, and teachers. Check
with state and local housing agencies to see what programs are available in your
area. Check www.usa.gov for links and other home buying help and information.
Mind Your Debt:
Having a large amount of debt in relation to your
income will lower your chances of getting a loan with favorable terms, or even
getting a loan at all. Private lenders generally have more stringent rules for
debt-to-income ratio (DTI). There are two kinds of DTI--how much personal debt
you can carry in relation to your income (e.g. car loans, student loans, child
care expenses) and income versus the amount you will be spending on housing debt
(e.g. mortgage payments, property taxes, insurance and so forth.) Lenders take
both into consideration. Would-be borrowers who want private financing generally
need to have less than 45% of their income going towards personal debts, while
FHA will finance borrowers who have up to about 56% of their income allocated
for debt payment. Borrowers can qualify for an FHA loan with up to 47% of their
income slated for housing costs, while conventional lenders generally allow only
up to 38-40%.
For Sellers:
Rising Home Prices:
House prices are rebounding from the downturn,
and 2014 is shaping up to be a seller’s market. Rising home prices are a boon to
sellers who can expect faster sales, multiple full-price offers and even offers
above their asking price.
Starter Homes in Demand:
If you have a starter home and are
looking to upsize, the market is especially in your favor. Starter homes are in
short supply because during the economic downturn, people were buying and
selling less frequently. Now that the economy is improving, there's a lot of
pent-up demand, especially for people looking for inexpensive housing or a
starter home.
Fewer Underwater Mortgages, More Equity:
The nationwide trend of
rising home prices means other good news for sellers. The boost in prices is
finally lifting many homeowners from their underwater mortgages and giving
others more equity in their homes. More equity means more owners will have the
money for a down payment and closing costs if they'd like to move up to
something pricier.
Time to Refinance?:
Rising prices will also raise the appraised
value of many homes, meaning it may be a good time for homeowners to refinance.
Higher appraisals may help you get more favorable terms on a first mortgage or
refinance the rolling of a second mortgage into one stable, fixed-rate mortgage.
Jill Hamilton |
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