The real estate market is ever-changing. Compared with not so long ago, that’s a good thing for many real estate markets. If you are ready to buy a home in today’s market in Oakland County Michigan or anywhere else for that matter, you need to take note of recent changes that may affect your home-buying power.
Buying a home in our local market today is not just about finding a home in the best condition in a great location for an affordable price. Smart home purchasers today require a deeper knowledge of the economy, the local market and new regulations. We can help you pinpoint all you need to know to make an educated move when buying a home.
Home prices, interest rates and fees are all top-of-mind when you’re figuring back-of-the-envelope costs. But, do you know what new guidelines are in place that can affect how much mortgage you can qualify for, what the local inventory of available homes is currently, or if you can find funds to remodel a home down the road? When you’re ready to buy a home — or if you’re thinking of selling and want to understand what buyers are thinking in today’s market — keep reading to get a true picture of how to make a smart move today.
We all could benefit from a crystal ball that tells us what home prices will be in six months, a year or several years from now. No one has that information, but we can tell you that according to the National Association of REALTORS® (NAR), home prices are up, on average 10% or more in the majority of major home markets nationwide comparing prices from first quarter 2013 over the same period one year ago. No one is promising these types of gains in every market, but don’t be surprised if the home you could buy just six months from now has a price tag you can no longer afford.
Although interest rates have been running at or near historic lows for many months, experts predict interest rates will rise — not drop — which again will affect how much home you can afford. Granted, rates won’t shoot up immediately, but even incremental changes will increase your costs…and reduce your buying power. Combine rising interest rates with increases in home prices, and your dream-home picture may have to be modified the longer you wait.
Federal Housing Administration (FHA) loans will cost more this year. As of press time, the upfront fee (FHA funding fee) was 1.75% of the loan amount. In addition, the mortgage insurance premiums (MIP) will need to be paid for the life of the loan (instead of stopping MIP after paying down 22% of the loan) and will be based on the unpaid amount of the mortgage. The MIP rate has risen to 2.05% of the financed loan amount (up from the previous 1.05%). Compare traditional financing with FHA financing to find the best choice for your budget.
According to the NAR, the number of homes for sale nationwide in the past half year has been at — or, even at times, below — the lowest supply of homes available back to the boom times of 2005. If you find a home you love, move quickly to make it yours as it is likely to sell fast given there are fewer gems to choose from. If you are in the higher-end luxury-home market, however, you’re likely to see a fairly good selection of homes and less competition from other buyers.
If you’re looking for a steal that needs just a bit of sweat equity to fix it up, you might be disappointed. The number of foreclosures, short sales and other distressed properties has been decreasing, and when they do appear, they are often bought up quickly and quietly by all-cash investors. Also, many former bargains are coming back on the market after a rehab, but are certainly no longer considered distressed sales since they’re now in move-in condition — and priced accordingly. If you’re looking for bargain or investment property, we can help you locate suitable properties, but the inventory may be tight.
With the improving economy, home builders are back in business offering brand-new homes. Due to pent-up demand and competition from other buyers, new-home prices are rising faster than prices of resale homes; over the past six months, new-home prices were up compared with the previous year, according to NAR. Don’t go it alone with the builder; get a real estate professional — like us — to represent your interests in the purchase.
LOANS YOU CAN AFFORD
At the height of the real estate bubble, risky loans had features such as interest-only payments, balloon payments and loan fees that were greater than 3% of the mortgage amount. Those options are now hard to find. Today, lenders offer “qualified loans” — which increases your ability to have a mortgage that fits your finances and will not surprise you. The Consumer Financial Protection Bureau’s (CFPB) new “Ability to Pay Rule” resulting from the Truth In Lending Act goes into effect in 2014, but most lenders have already been moving away from no- and low-documentation loans.
Lenders who provide “qualified loans” under CFPB’s “Ability to Pay Rule” also are working to ensure that your total debt does not exceed 43% of your total income. Therefore, if you earn $75,000 per year, your total combined debt (mortgage, insurance, car loans, student loans, etc.) could not exceed a yearly total of $32,250. When divided by 12, this means your total monthly debt payments cannot exceed $2,687.50. This proposed safeguard shows that your debt level is manageable, and you can afford to repay all your obligations.
When the value of your home is greater than your mortgage, the difference is “home equity.” Lenders today will allow you to tap into this equity — an option that during the downturn had become unavailable to millions of homeowners, often because their home equity had disappeared — once again allowing homeowners to remodel and refurbish their homes with a low-interest loan backed by the equity of their home.
Despite the challenges noted above, today’s buyers are still looking at many real estate markets around the nation that are more affordable than they have been for quite a few years — even decades, in some cases. That makes now a great time to buy a home and perhaps a better time than you’re likely to see for many years to come. To take advantage of today’s market, and overcome any hurdles along the way, you’ll need someone like us on your side to work with you. Contact us when you — or someone you know — are ready to buy a home