The down payment-interest rate-economic factors-qualification quadrangle can be so confusing. Rising rates, loosening requirements, down payment options, buyer's markets, seller's markets - what does it all mean to you if you want to buy a home? The truth is that while the banks might have a magical formula to determine your mortgage-worthiness, determining if the time is right really comes down to three main questions:
Do you want to buy a home?
Are you financially prepared?
Is your credit where it needs to be?
If yes, then go for it. Here are nine reasons to do it now.
1. Prices are good. According to the latest S&P/Case-Shiller report, home prices are still gaining, but have slowed. "The 10-City Composite gained 5.5% year-over-year and the 20-City 5.6%, both down from the 6.7% reported for July," they said. "The National Index gained 5.1% annually in August compared to 5.6% in July." This is good news if you were afraid that big price gains would put homeownership out of reach and also bodes well for your long-term equity once you purchase.
2. Rates are low. "Imagine paying over 18% interest on a 30-year fixed mortgage. It's almost unthinkable. But that was the reality for home buyers in October 1981 -- a year when the average rate was almost 17%," said Yahoo Finance. "The average rate has been 5.18% since the start of this country's history," making today's rates, which hover around historic lows at 4%, sound even better.
3. Loan requirements are softening. They're not approaching the look-the-other-way-and-stamp-it-approved levels that led to the market crash, but the overly tough restrictions that followed have loosened. "Major lenders are making adjustments," said The Street. "Wells Fargo has lowered the minimum FICO score for borrowers applying for loans insured by the Federal Housing Administration to 600 from 640." They also count JPMorgan Chase's lowered loan-to-value "standards in certain markets for both jumbos and conforming mortgages." For buyers that can mean an easier road to loan approval, even without a ton of money upfront and perfect credit.
4. FHA loans make it even easier for first-time buyers. If your credit is less than stellar and you don't have a large down payment, an FHA loan can get you in the door. Credit scores can be as low as 620 to qualify and only 3.5% down is required. Whether you've never bought before or have been out of the market for a few years, an FHA loan can be your answer.
5. Fewer buyers around the holidays means less competition for you and more negotiating power. "Sellers who are actively looking to sell their homes during the holiday months -- namely, October through December -- are serious about shedding the weight of their residences," said US News. "This often works in favor of savvy buyers looking to get a deal on discounted homes. Having less competition on the buyer's side can mean lower prices on homes, in addition to fewer counter-offers to compete against."
6. Rates are predicted to rise. "The Mortgage Bankers Association expects the average rate on a 30-year, fixed rate mortgage to rise slowly to 5.1 percent by the end of 2015," said the Washington Post. If you want to take advantage of low rates, now is the time.
7. Pent-up demand could zap affordability. "The housing market is about to get even more competitive," said Yahoo. "The pent-up demand of younger professionals, who moved back in with their parents during the recession, is about to explode. This eager subset of buyers will create some steep competition for homes, especially if they have been saving up to make larger down payments or high ticket offers. If the current homes on the market have more potential buyers, bidding wars develop, and the purchase prices are driven up.
8. "Buying is cheaper than renting in most markets," said Housingwire. With a little knowledge of loan options and low down payment programs, you can easily flip the switch from renter to homeowner.
9. Because you want to buy a home. There really is no more compelling reason than that. You want it. So make it happen.