Is Now the Right Time to Buy a House?
July 22, 2020
July 22, 2020
Is Now the Right Time To Buy a House?
There is no doubt we have spent a lot of time in our homes lately—certainly more than we had ever expected. With this, you may have suddenly realized some things you do not like about your current living situation. Whether it is a lack of room to spread out with multiple family members working and schooling from home, desire for a bigger backyard, or having many amenities close by, having a change of home scenario is something many of us consider.
With all the uncertainty in the world, deciding about something as major as buying a home may seem downright crazy. However, believe it or not, due to historically low interest rates, now may be the perfect time to buy a home. Here are some things to think about when considering the purchase of a new home.
Why do interest rates matter?
When you are looking at a home, there are essentially two numbers that come into play: one is the purchase price, of course. The second is the interest rate, otherwise known as, the amount of money your lender is charging you for the privilege of borrowing money in the form of a mortgage.
While most potential home buyers focus on the purchase price of a home when deciding if a property is affordable—and of course, that’s important—the interest rate plays a huge role in the affordability factor as well.
Let us run some numbers to show you why. Say you borrowed $200,000 for a standard 30-year fixed rate mortgage—note that there are many types of mortgage loan programs available that might be a better fit, but we will use this figure for our example. If the interest rate is 4%, which was an average amount in 2019, your total payments for the life of the loan would equal $343,739, with interest accounting for $143,739. But, if the rate dropped just a half a point to 3.5%, your total payments would be only $323,312, with total interest paid of $123,312.
Your monthly payment would adjust, too, putting more money in your pocket. (Check out our mortgage rate calculator here to find out more.)
Four Questions to Help You Decide if Now is a Good Time to Buy a Home
1. How is your credit score?
Your credit score is an important factor in buying a home because it indicates what your interest rate will be. Your credit score shows how responsible you’ve been in paying your past bills, which is a good indicator of your future behavior. In other words, a lender will offer a more attractive interest rate to a buyer who has a great credit score because they are more confident they will pay the loan back on time.
With the economy heading toward a potential downturn, lenders are becoming increasingly cautious about credit scores. It is important to review your credit history and score, so you can make improvements to increase your chances of being approved for a low mortgage rate.
2. How is the housing inventory in your area?
While interest rates remain low, the number of houses for sale might also be low. This means you might end up in a seller’s market, where there are more buyers than sellers. As a result, prices may be high, or you might find yourself in a multiple bid situation where would-be home buyers are bidding more than the asking price for the home.
It is smart to engage a real estate agent to help you identify homes within your price range and other parameters, like size and preferred neighborhood. Remember, if someone is selling their home right now, they might have a great reason and be particularly motivated. With fewer people out browsing open houses, it might be an ideal time for you to make an offer. A real estate agent will be able to assist you in understanding your market’s current inventory and how to approach making a deal on a house you love.
3. Have you been pre-approved for a mortgage?
The first step in purchasing a home is getting pre-approved for a mortgage loan, which means sitting down with a lender who will consider your finances to decide what you can afford. This can help you set a budget and understand your price range before beginning your search.
It is important to have a pre-approval letter when you make an offer on a home because it shows the seller you are serious. A seller wants the closing process to go as smoothly as possible, so they are generally inclined to choose an offer from a buyer who has been pre-approved for a loan. This assures a seller you have the financing in place to be able to complete the transaction. It also gives you a chance to go over the various loan programs available which might be suitable to your situation.
4. Do you feel confident in your current situation?
With conditions in our world changing rapidly, it is important to assess whether or not you feel confident about your current financial situation. If you work in an industry that has been particularly hard hit, you might want to confirm that your job and salary are secure for the foreseeable future.
Ready to talk through your options today? One of Valley Strong’s mortgage consultants would be delighted to talk with you about the various options and help you find a mortgage program that’s right for you. Find out more about buying a home and contact us today to discuss your situation in more detail.
Buying a home might be the perfect way to unexpectedly make 2020 your best year yet.