Numerous websites are doing their year-in-review stories. We thought we would look back in order to look ahead. Rates may be rising slightly, but they’re still very low. Here’s the bottom line: There are still plenty of great reasons to buy a home in 2017.
We came up with our top five reasons why buying a home in the next year could make for a great investment.
It actually makes a lot of sense for many people to go ahead and make the leap to homeownership.
Rent Is Expensive
Buying a house is a huge financial transaction and one that definitely shouldn’t be taken lightly. As with any big decision, you should take a moment to determine whether buying is right for you.
However, if you have some basics like a steady source of income and some savings, it can make much more sense than renting.
A study released this past October from Trulia shows that buying a home nationwide is 37.7% less expensive than renting. According to the study, the gap is 0.5% higher than where it was last year. It’s also important to remember that rent has a tendency to always increase with inflation. Your mortgage payment is much less likely to see drastic changes, particularly if you’re in a fixed rate.
Of course there are areas of the country in which this gap is greater than others. After all, real estate is all about location, location, location. However, in many areas of the country, you could end up keeping more of your money in your pocket if you can afford to buy.
Home Values Are Up
Part of the way you gain equity – the value of your home versus what you owe on it – in your home is through making the monthly payments. The closer you are to paying the loan off, the closer you are to owning your home outright.
The other way to realize more of a return on your investment is to have your home appreciate in value. These trends are cyclical, but for the last several years, appraised values for homes have been on the rise.
The more equity you have, the more potential your property holds as an investment. The obvious first thought is that the more a property is worth, the more you could expect to get from it in a potential sale. However, there’s more to it than that.
If you hold more equity, you can get more back from the property in a cash-out refinance. Having the option to take cash out can be really nice. You can use the money to put a child through college, boost your retirement fund or make home improvements.
If you find yourself renting, you don’t see the benefits of the equity – your landlord does. Why let your landlord have all of the fun?
Mortgage Rates Are Still Great
There’s no denying that mortgage rates are up since the election. However, it’s important to put these things in a little bit of context.
First, let’s take a look at where we’re at. Rates vary depending on a number of factors, but rates are in the mid-4% range right now. That’s not as low as it was a couple of months ago, but it’s certainly not very high, either.
Freddie Mac has been tracking average monthly mortgage rates for 45 years, dating back to 1971. While the average mortgage rate of 16.63% in 1981 with 2.1 points in prepaid interest (bringing 2.1% of the loan amount to the table) probably represents inflation gone haywire more than anything else.
Still, in 2006, the average mortgage rate was 6.41% and in the late ‘80s, mortgage rates were between 9% – 10%. In that light, today’s rates still look pretty awesome.
The Economy Is Looking Pretty Good
The economy is probably never going to be perfect. We don’t live in a society where leprechauns leave pots of gold at the end of the rainbow, but as we look at our pocketbooks, we should probably feel pretty darn good about where we stand right now.
According to the employment report from the Bureau of Labor Statistics, in November 2016 the unemployment rate moved all the way down to 4.6% of the labor force. While ideally no one would be unemployed, that’s an extremely low number.
It’s true that short-term interest rates have been rising. While that means mortgage rates are slightly higher right now, there’s another cool thing that happens in an environment of rising interest rates to give you more buying power.
Savings will end up paying you more over time as interest rates rise. More money in your savings account could help offset higher mortgage rates.
Low Down Payments
Finally, you may not have to put aside as much money as you think in order to buy a house. There are advantages to making a higher down payment, including better rates and the possibility of avoiding mortgage insurance. However, the adage that you have to save 20% is simply untrue.
The fact is that you can put down as little as 1%* or 3% in many cases and be able to get a mortgage. If you’re getting a primary property, the biggest minimum down payment you can have is 5%.
Everyone’s financial situation is different, but if you can afford to buy, there’s little reason not to. If you’re ready to get started, go ahead and get preapproved with Rocket Mortgage or call (888) 728-4702.
* For example, the payment on a $200,000, 30-year fixed-rate loan at 4.875% (5.349% APR) with an LTV of 97% is $1,058.42 and mortgage insurance of $103.33. Taxes and homeowners insurance not included. Rates shown valid on publication date of 12/27/2016. Restrictions may apply.
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