Should I buy a house now?
It’s no secret that the housing market is hot right now. However, this has not deterred home buyers.
Despite rising house prices, low supply, and near-constant rate wars, Americans are buying homes in record numbers. According to National Association of Realtors, more homes were purchased in 2020 than in any other year since 2006.
Should you follow their lead and buy your dream home now? Or does it make sense to wait until the market cools down? Let’s dive in.
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Pros of buying a home in 2021
It may seem that today’s housing market is bad news: rising prices, drop in availability, etc. But there are certain benefits to buying a home right now.
Low interest rates increase affordability
First, low mortgage rates. According to Freddie Mac, interest rates on 30-year loans averaged 2.96% in May 2021. Just two years ago? This average was well above 4%.
Economists expect rates to continue to rise this year and next. By the end of the year, they may exceed 3.25% or even 3.5%.
Let’s say you buy a house worth $ 400,000. With a 20 percent down payment ($ 80,000), you have a $ 320,000 mortgage loan.
Here’s how your savings can compare with today’s low mortgage rates to projected rates at the end of 2021:
|The value of the loan||USD 320,000||USD 320,000|
|30 year flat rateone||2.96%||3.50%|
|Monthly mortgage payment||USD 1340||USD 1440|
|Total Interest Paid (30 Years)||USD 163,200||USD 197,300|
oneInterest rates are for example only. Your own mortgage rate will be different
The result is a more affordable monthly payment, lower long-term interest costs, and a larger budget to buy a home (or, often, all three).
Rising Home Values Create Equity
Buying now also allows you to take advantage of record increases in home prices.
Prices have increased more than 15% last year, giving homeowners – even newly minted ones – a serious profit when they decide to sell. Buying now will give you the chance to capitalize on this growth and increase your capital really quickly.
There are many mortgage options
Today’s buyers can choose from a wide variety of no prepayment and low down payment mortgages to make buying a home more affordable.
Yes, you may have to pay private mortgage insurance (PMI) if you invest less than 20 percent. But it’s not always bad…
Setting aside less money can help you buy earlier and benefit from rising home values, rather than waiting to save 20 percent and chasing higher purchase prices later.
And it saves you more money on closing expenses, home renovations, emergency funds, and other expenses that a new homeowner is bound to have.
Cons of buying a home in 2021
The downsides to buying a home in today’s market are numerous.
Inventories are extremely low, which means poor collection and a very high rate war. This drives up home prices and makes buying a home – let alone providing it – an even more difficult task.
In a seller’s market like this, bidders typically exceed the selling price. And you may have to do the same if you are hoping to get a new home this year.
Competition from buyers for cash
On top of that, there is also a major cash shopper spike to worry about.
They can be quite tempting for home sellers, offering win-win sales, quick closings, and other convenient perks – especially when compared to mortgage offers.
Unfortunately, according to ATTOM Data Solutionsnowadays, cash offers account for over a quarter of all home purchases.
But that doesn’t mean that mortgage borrowers are out of luck. There are several strategies you can use compete with the money supply… After all, the vast majority of buyers still use a home loan – and so can you.
Tighter mortgage standards
Mortgage lenders have raised the bar for home buyers during the coronavirus pandemic.
Due to the increased financial risks, lenders wanted to see higher credit ratings, higher down payments and often significant cash reserves in order to qualify for a mortgage loan. This has made it difficult for many new home buyers to obtain a mortgage.
These standards starts to relax as the pandemic weakens. But getting a mortgage is still not as easy as it was in early 2020.
Also, some sellers less likely to accept FHA and VA loans During these days. Therefore, if you are planning on using this type of financing, ask a reliable real estate agent and loan officer by your side to make sure the deal goes through.
Is it cheaper to buy a house or rent?
Buying a home now is not the right choice for everyone. In many parts of the US, renting a home is actually more affordable than buying.
On average, the difference in cost between buying and renting is about $ 600 per month. recent training. In some markets, it reaches $ 1200.
Moreover, house prices are also growing faster.
Of course, this is not universal.
The comparison depends on local house prices, location and size of the property in question. So make sure you evaluate your market before making a decision. BUT good real estate agent can help here.
And keep in mind that renting does not provide a return on investment.
While higher mortgage payments make home ownership more expensive, some of that money goes back into your own pocket as home equity. On the other hand, the lease does not bring any profit to the tenant.
So instead of just looking at costs, make sure you consider your long-term financial goals. Will it help you buy a house?
Who is buying a house now?
Still not sure if buying a home is the right move in today’s real estate market?
The best solution really depends on your budget, work situation and your location.
Generally speaking, buying a house (at least right now) is best for people who meet at least one of the following conditions:
- Have a budget to pay above the asking price, which is often required to win a bid.
- Can pay for home purchases in cash
- Live in an area where demand for home purchases is low and prices are more affordable.
- They work from home and have the opportunity to move to the cheaper housing market.
- We are ready to consider problem real estate objects (not ready to move in) that may require additional work
If you do not fall into one of these categories and are considering buying a home, talk to your financial advisor first. They can help you make the right decision based on your personal finances and budget.
Who will wait until next year?
If you’re really in the mood for buying a home, there are ways to make it possible.
However, it might not be the best move if you fall under one of these umbrellas:
- You will need to really expand your budget to afford today’s prices.
- You will have to buy a home that does not suit your needs or will require too many sacrifices due to the price.
- You can’t qualify for a good mortgage rate, which would ultimately mean paying even more for your home.
- The market you want to buy from is particularly hot or competitive, which means it will be very difficult to find a home that you can afford.
In the above scenarios, it is best to ride out the current real estate boom.
At some point, house prices will level out and competition will diminish. This will make it easier for you to find a home and stay within your budget.
How to know if you should buy a house in 2021
If you are considering buying a home in today’s crazy marketplace, be sure to take a close look at your budget, local house prices and affordability, and your needs as a buyer.
If you are unsure of the best option, consult a professional. Your financial advisor, loan officer, local real estate agent, or your tax advisor can help you make the right decision for your family.