Interest rates are on the rise in 2015, which has many future home buyers wondering if they should rethink buying a home this year. However, there are many factors that go into buying a home, and right now may be a better time than ever depending on your specific situation.
Below are various reasons for why you may want to start your home buying process this summer.
Interest rates are currently hovering slightly below 4% for a 30-year fixed-rate mortgage. However, Zillow is expecting interest rates to rise to 5% by the end of the year, which is a huge difference from the nearly 4% interest rate we are currently experiencing.
Interest rates are not expected to stay at historic lows anytime in the near future, so buying a home sooner rather than later may mean that you may be able to save a few thousand dollars each year, depending on the amount of the mortgage you plan on taking out.
For example, a $200,000 mortgage with a 4% interest rate and a 30 year term has a $955 monthly mortgage payment (not including property taxes, private mortgage insurance, homeowner association fees, etc.). However, a $200,000 mortgage with a 5% interest rate and a 30 year term has a $1,074 monthly mortgage payment (not including property taxes, private mortgage insurance, etc.). That is a difference of $119 a month, or $1,428 per year, just by not buying your home when interest rates are lower.
In January of 2015, the Federal Housing Administration lowered mortgage insurance premium costs from 1.35% to 0.85%. If you plan on putting down less than 20% on a home, then lower mortgage insurance premiums may make it more affordable to do so. These lower premiums are expected to save over two million homeowners an average of $900 each year.
Due to there being cheaper mortgage insurance premiums, in some cases it may be a better idea to buy a home sooner due to all of the other benefits of buying now, instead of waiting later when housing may be more expensive and interest rates may be higher. Yes, saving for a larger down payment may be a great idea, but when you combine all of the factors in this article, you may actually find yourself losing money over the long-term.
Home prices are said to be increasing and they are only expected to keep increasing in the future. Inventory is down and is expected to shrink further, homes are being sold above asking price, and interest rates are climbing. Also, according to Freddie Mac, home prices are expected to see a price gain of 4.5% in 2015 alone, and they’re expected to keep increasing in the following years.
There’s not a better time to buy a home except for right now. With home values expected to keep increasing, you may be able to receive a better value by buying now instead of waiting until a later date.
Rent prices are increasing.
Lastly, rent prices are increasing month after month in the United States. In many areas in the U.S., you may even find yourself paying a higher amount towards rent each month than you would if you had a monthly mortgage payment. There are also a variety of different mortgage options, such as VA loans and FHA loans, for thost that don’t have a large down payment saved up. In the long run, buying a home now instead of renting could end up saving you a large amount of money.
In fact, according to Trulia, buying a home is 35% cheaper than renting a home right now. That may be enough of a reason in itself to look into buying a home as you can put the money that you would be paying towards rent instead towards building equity in a home.
Michelle Schroeder is an award-winning personal finance blogger. She discusses student loans, budgeting, intentional living, and more, all on her personal finance website. She has appeared on Forbes, WiseBread, Huffington Post, Zillow, Business Insider, Yahoo! Finance, Lifehacker, Lifehack, The Consumerist, US News, Mint.com, Learnvest, BankRate.com, and more. Michelle also has her Finance MBA.
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