American economists have scrutinized mortgage interest rates ever since the housing recovery started to gain traction. No more than a year ago, “experts” were predicting mortgage rates to surpass five percent. However, as we enter into 2015, interest rates remain below four percent. While higher than we have become accustomed to, that is still historically low. Nevertheless, low interest rates have helped many prospective homeowners actively participate in the housing market. Some people have even made the move from renting to owning in fear of future rate increases. While not a bad idea, interest rates are just one of many factors that go into deciding whether or not to purchase a home. Interest rates are by no means the only factor that should determine when you are ready to buy a home.
According to Casey Fleming, published author and mortgage broker, “Small changes in interest rates don’t make large changes in your payment.” While fluctuations in rates could change monthly premiums, they should not be viewed as the most important factor when purchasing a home. There are simply too many factors to say that one stands above the rest. Yes: mortgage rates are very important, but don’t make a purchase based solely on the rate you can get.
Current market conditions, in addition to the expansion of the economy, suggest that 2015 should be a great year to buy a home. Not only are interest rates conducive to lower monthly payments, but more inventory is also expected to enter into the market. Experts believe that low interest rates will flood the market with more homes for sale. Owners will be more inclined to sell if they know they can secure an even lower interest rate than what they are currently paying. Moving up, therefore, becomes a critical component of the housing sector. Even more so, appreciation rates have begun to ease. If equity gains have been lost, there is more of a reason to move. At the very least, there is less of a reason to stay.
Again, there are other factors to consider when you are looking to purchase a home. While interest rates may be important, they are not the only factor to consider. That said; the following highlights five factors that buyers need to consider:
Duration Of Stay
While often overlooked, the amount of time you plan to spend in the home is one of the most important factors to consider when buying. Essentially, does the duration of stay make it more economical to buy than rent? Of course, there is no simple answer for such a generic question. Each market is different, and will require a subsequent analysis to determine if buying is the right choice. That said; it is entirely possible to predict whether or not the time you plan to spend in the house warrants its purchase.
“On average, it takes four to seven years to break even on a home, where you’ve got enough appreciation where it can pay you back for the cost of the transaction and cost of ownership,” Fleming says. “If you’re thinking about buying a home, selling it in two years and think it’s going to be cheaper than renting, it’s very unlikely to be.”
The expansion of the economy has increased employer sentiment. For all intents and purposes, 2015 appears primed to make significant strides in the job sector. More jobs are constantly being added, as employers are confident that this year will be more lucrative than those in recent memory. However, that does not mean that job security doesn’t weigh on the minds of those that are fortunate enough to be working. How could it not? We are still recovering from one of the worst recessions in American history. Trepidation abounds. Having said that, the last thing you want to think of when buying a home is job security. Uncertainty will almost certainly ruin any prospects of buying a home. There is perhaps nothing worse then buying a home, only to discover that you are unemployed shortly after. So before you make a 30-year commitment to mortgage premiums, make sure you are secure in your employment position.
The down payment on a purchase remains one of the biggest obstacles in the way of potential buyers. Millennials, in particular, have found it difficult to save up a lump sum of money. Not only did the millennial generation graduate from college during one of the worst recessions in American history, but they are also saddled with student loan debt. If that wasn’t enough, underwritings have become more difficult to work with and rents have made it utterly impossible to save up enough money for a down payment.
In a move to make down payments more “affordable,” both Fannie Mae and Freddie Mac have announced that they intend to back loans with down payments as low as three percent. Moreover, the Federal Housing Administration (FHA) is planning to drop the premiums owed on mortgage insurance. The move could make owning a home much more affordable for buyers.
As simple as it may sound, the emotional state of a buyer is particularly import during the process of buying a home. That said; homeownership is not for everyone. Buying a home is a huge commitment that not everyone is ready to sign up for. There are those who still wish to travel the world or find their dream careers. Perhaps even more importantly, owning a home comes with additional responsibilities: responsibilities that not everyone wants to deal with.
“Your life changes a great deal when you go from being a renter to an owner,” Fleming says. “When things break, it’s your responsibility to fix them, not the landlord’s.”
Local Market Indicators
As frustrating as it may be, one of the largest factors to consider when buying a house is something you have no control over: the local market. When it comes down to it, you may not even be given any options. The market you are interested in may not have nay homes in your price range, or in the right location. On top of that, some market values dictate whether or not owning is even a viable option. While it is becoming cheaper to own than rent in some markets, there are those where renting is justifiable. It all depends on the current state of the particular market you are interested in. So while interest rates are important, it is equally important to own in the right market.