If you are looking for a starter home, a second home, or an upgrade, 2015 may offer your last best chance to buy for a while. With mortgage rates set to rise in the near future, more people will be competing over the same properties. If you buy now, you could save yourself tens of thousands of dollars or more.
Play the Down Payment Game
If you are a first-time home buyer or haven’t owned a home for three years or longer, and you have good credit, you may qualify for a loan with a three percent down payment through Fannie Mae or Freddie Mac. This is a great choice if you don’t have a lot in savings but still want to own your own home. However, if you want to take advantage of this low down payment, you will have to act fast. These rates are set to rise after March 23.
The downside of a low down payment is higher interest rates. According to recent census data, the average cost of a home in the U.S. is about $320,000. A three percent down payment of $9,600 is a steep drop from the more standard 20 percent, which would be $64,000. However, that $54,400 upfront savings is more than made up for over the course of a 30 year loan. Whereas a 20 percent down payment can offer you an interest rate of about 3.9 percent, a lower loan may be seven percent or higher. That extra $800 per month could end up costing you over $300,000 through the life of your mortgage. That is not including the additional insurance expenses and fees that arise from low down payments.
This is not to say that you should not jump on the low down payment while you can. If your plan is to invest in a home and sell at an eventual profit, you may come out ahead. You can also attempt to refinance a mortgage at a later date so you can take advantage of a lower future interest rate along with the present low down payment.
Take Advantage of Interest Rates
Low interest rates have been the norm for the last few years, but all of that is changing in 2015. In order to stifle inflation, the estimated interest rate boost will likely be about .5 percent and will show up in the second half of the year. In the meantime, you can still enjoy a mortgage rate that comes in under four percent.
If you have more flexibility with your budget, you can get an even lower interest rate by choosing a 15 year term rather than 30. Though a 30 year mortgage has become the norm, the savings on a 15 year note can be massive. The standard interest rate can drop by almost a full percentage point. On an average home, that is a long-term savings of about $100,000.
Understand a Buyer’s Market
Experts believe that home values will drop in 2015. This is partly due to a poor overseas economy, which is causing fewer foreign investors to place their money in U.S. properties. Another major factor is the current low cost of oil. As materials get less expensive, production booms. New homes will rise at a rate of about half what they did for the last three years, making them available at prices that are very attractive to prospective homeowners.
Before you get overly excited about the prospect of a buyer’s market, remember that there is a downside. With house prices and interest rates relatively low, along with an influx of Millennials suddenly looking to buy rather than rent, there will be a lot of competition in the marketplace. Competition is great for sellers, not so much for buyers. Negotiating with sellers may become a bit trickier, especially as the year wears on. That standard offer of 10 percent less than the asking price may turn into 10 percent more if there are enough other offers on the table.
Consider Alternative Locations
If 2015 is the perfect time to buy a home, it is also the perfect time to look in a variety of locations. Flexible work environments and the rise in entrepreneurship means that more people are working from home. This gives you more fluidity with your home base, which means you can get a lot more bang for your buck if you are willing to relocate.
The coasts may be attractive for their sights and amenities, but the Midwest and south are known for being affordable. In 2015, you can spend less than $300,000 on a 5,000 square foot home, five bedroom home in northwest Georgia. Look for the same specs on a home in San Francisco and you will pay seven figures, though you’re unlikely to get the same amount of space or any acreage.
The same logic can be applied to vacation homes. Though you may dream of a beachfront property, not all are created equally. Hilton Head, South Carolina and Gulf Shores, Alabama have stunning vistas and a year-round vacation vibe, but they are sometimes hundreds of thousands of dollars away from one another in price. A tweak in your location can be all it takes to afford the home of your dreams, and 2015 is the best time to make those dreams come true.