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The days of historically-low interest rates may be over, but that shouldn’t stop you from purchasing a home this year. In fact, the longer you wait, you are more likely to pay more for the same home as the year progresses. Let’s look at two of the major factors that will impact the cost of your home purchase this year.
Interest Rates Are Rising
After years of interest rates in the 3% range, the interest rate on a 30-year conventional, fixed-rate mortgage finally broke 4% late last year.
With the economy still growing strongly, the Federal Reserve has predicted that they will raise the federal funds rate, which influences the mortgage rates offered by home loan lenders, three to four times in 2018. While these rate increases have a major impact on credit card interest rates, they often impact home loan interest rates too, along with other economic factors such as the 10-year Treasury bond rates. Economists are predicting that home loan interest rates are likely to end the year closer to 5% for a borrower with good credit.
This chart compares the payments of a borrower who locked their rate on a $200,000 conventional fixed home loan on January 1, 2018, with a borrower who locked their rate for the same home loan on March 1, 2018.
Difference: $44.40 per month; $15,984 over the life of the $200,000 loan
To keep the payment the same on March 1, the borrower would need to increase their down payment from $50,000 to $58,636. If the borrower is unable to increase the down payment, the purchase price of the house would need to decrease from $250,000 to no higher than $239,205.
Home Prices are Increasing
In many major American cities, home prices have soared the past few years. In 2017 alone, home prices increased 6.6% nationwide, according to CoreLogic. While 2018 prices are expected to increase moderately, a shortage of housing inventory, especially in smaller homes at entry level prices that appeal to first-time home buyers, is expected to keep the housing market in many metropolitan areas competitive.
While CoreLogic forecasts that home prices will increase 4.3% this year, long-term the news is great for home buyers that do purchase this year. A group of experts interviewed by Zillow expects home values to grow a total of 17.3%, on average, through 2021.
Tips To Help You Successfully Purchase A Home Now
Review your credit reports and know your credit score before you get pre-qualified. A good credit score will position you for a better interest rate than a borrower with a low credit score. A score of 700 and higher is generally considered good, but you can qualify for a home loan with a lower credit score. For example, both VA home loans and FHA home loans require a 580 minimum credit score, whereas a USDA home loan and a Conventional Confirming home loan require a minimum credit score of 620.
Consider purchasing a fixer-upper to get your dream home. If you are looking in a high cost or competitive housing market, your dream home may not be available to purchase within your budget or in your preferred neighborhood. An alternative option is to look at homes in your preferred location that meet your basic requirements, then apply for one of Certainty Home Loans’ renovation home loans that combine the renovation cost and the purchase price into one home loan.
Get pre-qualified before you start house hunting to learn how much home you can afford. Discuss with your lender your home loan options, so you’ll know the how much you should be prepared to save for your down payment and approximate closing costs.
Certainty Home Loans offers many loan options with low down payment requirements, and VA and USDA home loans offer 100% financing for qualified applicants, so don’t be put off from pursuing a home purchase if you are unable to save a 20% down payment.
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