There can be a lot of indecision when it comes to buying a home. You want to make sure you’re getting the best deal possible.
But now that interest rates and home prices are both going on up in many parts of the country, that procrastination could cost home buyers more money in the end.
“The trends suggest price increases will continue for some time. So, it may be easier for someone to buy now than, say, wait a year or two. But frankly, no one knows what the market will look like in the future,” says Matthew Lewis, vice president and mortgage production manager at Regions Mortgage in Little Rock, Ark. He also is serving as president of the Mortgage Bankers Association of Arkansas.
Affordable, single-family homes, in general, are still available, he adds.
“What might have changed, though, is the need to move farther away from the center of a city to find it,” he says. “Otherwise, a buyer might have to look at a home that needs more up-front repairs or updates as compared to the real estate market of several years ago.”
Certainly, there are markets such as San Francisco or New York where buying a single-family home can be an elusive goal because of the general increase in home prices in those specific areas.
However, those markets have historically been very expensive. For most of America, the point remains that a lower-priced house is still within reach, he explains.
Reasons people put off buying a home
People share all kinds of reasons about postponing this big purchase, from saving for a downpayment to a job change in a different part of the country to building up their credit scores.
There are some other factors to consider, too, Lewis explains:
“There are many genuine reasons people wait. Paying off student loan debt, loss of employment and waiting for economic stabilization are all legitimate reasons to wait. I’ve also seen where, as a group, some Millennials have delayed their first home purchase because they don’t see the value of purchasing a home. However, I’m starting to see the tide is turning. I see greater demand in certain areas, and in some places, homebuilding has resumed after years of stagnation.”
Also, during the recession, home building slowed to a snail’s pace because demand was low, he adds. At the same time, the overall population continued to grow at a normal pace, resulting in “low inventory” in the housing market.
The hesitancy to purchase during the recession led to a boom in apartment construction.
As those renters now enter the home buying market, that’s causing increased competition for a limited number of homes.
Tha,t in turn, impacts prices. If that four-bedroom, two-story house listed for $225,000 has two or three families bidding to buy it, the seller could receive well over asking price, he says.
“Keep in mind, this isn’t happening everywhere,” he says. “But I see anecdotal evidence of this happening in various areas. In areas where this is seen, people are either moving out to bedroom communities with lower costs or continuing to rent.”
Mistakes potential buyers make that lessen chances of buying quickly
While determining the best day to lock the rate or negotiating the best price for a home are important details, working too hard and overthinking the transaction in an attempt to get the best deal can cause delays that aren’t worth it, Lewis states.
“Consumers should shop around. But it’s up to the consumer to determine the best offer that meets his or her financial needs,” he adds.
Scenario of price increase for the same home in five years
Let’s assume there is an appreciation in value of 5 percent per year, Lewis says. On a $250,000 home, that level of appreciation means you would pay $319,000 for the same home five years down the road. That’s $69,000 more for the same house.
If the interest rate goes up, you could be paying even more.
Scenario of interest rate jump on same loan
Monthly Payment on $250,000 loan for 30-year fixed rate loan (purely an example for informational purposes only)
4%: $1,193.54 (principal and interest only)
5%: $1,342.05 (principal and interest only)
Life of Loan Interest Paid
Myths that stop some from jumping into buying a house
- “I don’t have a 20% down payment.”
- “I am too young to get a house.”
- “I don’t make enough money.”
- “I should pay off all my other debt before I buy a house.”
- “I am nervous about the process of buying a house.”
- “After the recession, home loans are very difficult to get.”
- “I don’t think my credit score is high enough.”
Important things to do when thinking about buying a home
Lewis suggests that if you want to live in a certain area, understand what the costs are (such as monthly payment as well as cash needed for closing) for that to happen. Lenders will give consumers a variety of relevant information to consider.
Once a potential buyer understands what he or she can afford, he advises the next step be to contact a real estate agent.
“Agents have access to market-specific information, and they walk buyers through the process while helping protect their interests. Real estate agents and lenders work together to make sure the consumer has advocates and direction,” he says.
While the home buying landscape has evolved over time, purchasing a house is still within reach for the traditional homebuyer, Lewis says.
“I encourage people to contact a trusted financial and real estate professionals to explore your options and determine when to enter the market. You may find that it’s best to wait a while. Or you may determine that it’s better to enter the market now,” he says.