Mortgage

Who can buy a home in 2021 and who ought to wait?

Should I buy a house now?

It's no secret that the housing market is hot right now. That didn't stop the homebuyers, however.

Despite rising home prices, low supply and almost constant bidding wars, Americans are buying homes in record numbers. According to the National Association of Realtors, more homes were purchased in 2020 than in any year since 2006.

Should you follow suit and buy your dream home now? Or does it make sense to wait until the market has cooled down? Let's dive in.

Confirm eligibility to buy a house (July 12, 2021)

In this article (continue to …)

Benefits of Buying a Home in 2021

It may seem like today's housing market is just bad news: rising prices, falling affordability, and so on. But there are definitely some advantages to buying a home now.

Low interest rates make it more affordable

For one thing, mortgage rates are low. According to Freddie Mac, the interest rate on 30-year loans averaged 2.96% in May 2021. Two years ago? This average was well over 4%.

Economists assume that interest rates will continue to rise this year and next. They could exceed 3.25% or even 3.5% by the end of the year.

For example, suppose you buy a home worth $ 400,000. With a 20 percent down payment ($ 80,000), you have a mortgage loan amount of $ 320,000.

Given today's low mortgage rates, your savings could look like this compared to the projected rates for late 2021:

Loan Amount $ 320,000 $ 320,000 30 Year Fixed Rate 12.96% 3.50% Monthly Mortgage Payment $ 1,340 $ 1,440 Interest Paid (30 Years) $ 163,200 $ 197,300

1 Interest rates are for example purposes only. Your own mortgage rate will be different

The result is a cheaper monthly payment, fewer long-term interest costs, and a larger budget to buy a home (or often all three).

Rising home values ​​create equity

If you buy now, you can also enjoy a record-breaking rise in home prices.

Prices have soared over 15% in the last year, bringing homeowners – even newly minted – significant profits if they decide to sell. If you buy now you will have the opportunity to take advantage of that growth and build your equity really fast.

There are many mortgage options

Today's buyers can choose from a wide range of low or no down payment mortgages to make home buying more affordable.

Yes, you may have to pay for private mortgage insurance (PMI) if you are paying less than 20 percent. But that's not always bad.

With less money invested, you can buy sooner and benefit from rising property values ​​- instead of waiting to save 20 percent and chasing higher purchase prices later.

And save more of your money on closings, home repairs, emergency funds, and other expenses that a new homeowner is sure to incur.

Confirm eligibility to buy a house (July 12, 2021)

Disadvantages of buying a house in 2021

The disadvantages of buying a home in today's market are numerous.

low inventory stock

Inventory is extremely low, which means limited selection and a very high rate of bidders. This drives up property prices and makes buying a home – not to mention affording one – even more difficult.

In a sellers' market like this, it is common for bidders to go above the asking price. And you may have to do the same if you want to secure a new home for yourself this year.

Cash Buyer Competition

Additionally, there is also a serious surge in cash buyers to worry about.

These can be very tempting to home sellers as they offer a safe sale, quick deal, and other practical benefits – especially when compared to mortgage offers.

Unfortunately, according to ATTOM Data Solutions, cash offers now make up more than a quarter of all home purchases.

But that doesn't mean that mortgage borrowers are out of luck. There are several strategies you can use to compete with a cash offering. At the end of the day, the vast majority of buyers are still using a home loan – and so can you.

Stricter mortgage standards

Mortgage lenders raised the bar for home buyers during the coronavirus pandemic.

Because of increased financial risk, lenders wanted higher credit ratings, higher down payments, and often significant cash reserves in order to qualify for a mortgage loan. This made it difficult for many first-time buyers to secure a home loan.

These standards are starting to relax again as the pandemic subsides. But mortgages are still not as easy to come by as they were in early 2020.

Additionally, some sellers are less likely to take FHA and VA loans these days. So if you're planning on taking advantage of this type of funding, get a rock-solid real estate agent and loan officer by your side to make sure the deal hits.

Is it cheaper to buy or rent a house?

Buying a home is not the right choice for everyone. In many parts of the United States, renting a home is actually cheaper than buying it.

On average, the cost gap between buying and renting is around $ 600 per month, according to a recent study. It's up to $ 1,200 in some markets.

In addition, home prices are also rising faster.

As rents begin to rebound after falling amid the pandemic, home prices have soared over 15% in the last year alone – much more than the 5% growth rate seen in single-family homes.

Of course, this is not universal.

The comparison will depend on local home prices, the location, and the size of the property you are considering. So make sure to analyze the numbers in your market before making your decision. A good real estate agent can help here.

And remember that renting does not provide a return on investment.

While higher mortgage payments make home ownership more expensive, some of this money flows into your own pocket in the form of home equity. However, renting the property does not generate any returns for the tenant.

So don't just look at the cost, consider your long-term financial goals. Will buying a home help you get there?

Who should buy a house now?

Still not sure if buying a home is the right move in today's real estate market?

The best decision really depends on your budget, employment situation, and location.

In general, buying a home (at least for now) is best reserved for people who meet at least one of these conditions:

Do you have the budget to pay above asking price, which is often required to win a bidding war. Are able to pay for their home purchase in cash? Lower cost housing market? Are willing to consider distressed real estate (not ready to move into) that may require a little more work

If you don't fall into one of these categories and are considering buying a home, speak to your financial advisor first. They can help you make the right decision for your personal finances and budget.

Who should wait until next year?

If you really want to buy a home, there are ways to go about it.

Still, falling under one of these umbrellas might not be the best move:

You'd really have to overwork your budget to be able to afford today's pricesYou'd have to buy a home that doesn't suit your needs or would require too much sacrifice because of the priceYou can't qualify for a good mortgage rate, which means you have to pay Even more for your home in the long run The market you want to shop in is particularly hot or competitive, making it very difficult to find an affordable home

In the above scenarios, maybe your best bet is to wait for the current real estate boom.

At some point, home prices will level off and competition will dwindle. This will make it easier to find a home while staying on budget.

Here's How To Tell If You Should Buy A Home In 2021

If you are considering buying a home in today's crazy market, you should carefully look at your budget, local property prices and availability, and your needs as a buyer.

If you are not sure what the best move is, consult a professional. Your financial advisor, loan officer, local real estate agent, or tax advisor can help you make the right decision for your budget.

Confirm your new plan (July 12, 2021)

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