Mortgages rates are currently at an all-time low and the demand for real estate has been increasing. Many people are making the decision to put the “for sale” sign on their front lawn or to move out of their rental and purchase their first home. As individuals and families opt to take these next steps, they are confronted with a multitude of financial considerations. Here are some helpful tips to consider when evaluating real estate decisions in today’s market.
- Is buying a home really better than renting?
- Increasing buying power during a hot market
- Getting the best interest rate
- Main considerations for today’s housing market
What are the benefits of buying a home over renting a home?
Owning a home is a large financial burden. The down payment and closing costs upon initial purchase add up quickly and will deplete a large chunk of your savings. There is no longer a landlord to assist with payment for repairs and the upkeep of the property. As a homeowner, it is now your responsibility to fix the sink that has been leaking and pay for a new roof when the time comes. That causes many people to wonder, “is owning a home is actually the best route? Should I continue renting and avoid the added expense of homeowner’s insurance and property taxes?”
There is no simple answer and there are pros and cons of each. If you are considering purchasing a home, you are increasing your assets. You may shockingly find that your mortgage is on par with your monthly rent. Even if it is higher, your monthly payments are serving as an investment vehicle. Unlike renting, it is moving you closer to the ownership of a home. Owning a home allows you to build equity and real estate typically appreciates over time.
Before making the jump to owning – make sure to evaluate your financial situation. Do you have an emergency fund saved? You want to make sure you have at least three months of expenses saved in case something were to happen. Do you have enough funds for a sufficient down payment and closing costs? There is plenty to consider when deciding to purchase a home – make sure you are financially prepared!
How much can I afford?
If your savings is enough for a sufficient down payment – it is time to consider how much you are able to afford. When determining a price, consider your budget and what you are comfortable spending on a monthly basis. Utilize a mortgage calculator online and consider your debt to income ratio. This is calculated by determining the sum of your monthly debt and expenses and dividing it by your monthly income, then multiplying it by 100.
Before deciding that you can afford a $1Million home, you need to determine how much a lender will approve you for if you are taking out a mortgage on the home. They will consider your down payment, what is left in your savings after, your monthly income, and your debt.
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How can I increase my buying power?
You’ve decided you’re ready to take the next step and begin looking at houses? With the Covid-19 pandemic, there has been a tremendous spike in the housing market. You may have viewed the house of your dreams and put in an offer, but so did 50 other interested parties. People are rushing to buy due to the low interest rates which makes for a competitive market.
Make sure to do your research! Just because a house is listed for $600,000 does not mean it will sell for $600,000 when the market is hot. Many people will put in offers higher than the asking price. Check and see what similar houses have been sold recently. Look often as many people are looking and putting in their offers quickly. Have your pre-approval ready or you won’t be able to put in an offer.
Am I getting a good interest rate?
A major cause of the surge in real estate is due to the current low interest rates. We are seeing conventional 30 year fixed loans under 3% and 15-year fixed loans are hovering around 2.5%. This is a great opportunity for those who are on the fence about purchasing their first home or an investment property to finally take the plunge. The market corrections will eventually go away, but locking in a fixed rate for the next 15 or 30 years will stay with you for that period of time.
Rates change and fluctuate daily – even multiple times throughout the day. They are affected by stock performance, foreign market performance, unemployment rates, and inflation. Your lender will help you determine when to lock in rates. You can also set up alerts to track rates and help you decide.
Make sure you do your research before taking any next steps! Talk with friends and family for help with references or additional considerations when buying your first home, investing in a rental, or downsizing for retirement. Don’t forget to get protection! Insurance for your home is necessary, but it is also important to make sure you are protected if something were to happen to you or your partner if you are both on the loan.
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Any discussion of taxes is for general informational purposes only, does not purport to be complete or cover every situation, and should not be construed as legal, tax or accounting advice. Clients should confer with their qualified legal, tax and accounting advisors as appropriate.
Chris Kampitsis is a registered representative of and offer securities, investment advisory services through MML Investors Services, LLC. Member SIPC. www.SIPC.org 6 Corporate Drive, Shelton, CT 06484, Tel: 203-513-6000