Buy Now or Wait? Mostly the Answer is Personal Preference

Buy Now or Wait? Mostly the Answer is Personal Preference

I recently read a blog post stating that now is a good time for anyone looking to buy a home and for anyone looking to sell their home that they should sell now. As I read the full post by the author their fundamental argument for selling made sense – over the first half of 2011 home prices are expected to fall – so if you have to sell in the next year or two, now is a good time to do so so you get the max for your home. But as a I read through the buying now explanation I decided that what they were saying needed some further exploration…so here it is. (By the way, may experts are saying the same thing about values and rates.)

  • Low Rates

  • High Rates

  • So Buy Now or Wait?

Low Rates

For buyers who can get a VA loan and take advantage of low va rates then now might be a good time to act – the same is really true for just about every loan program – rates are still great and now is as good a time as any to get a mortgage.

But who knows how long rates are going to stay this low?

Here’s the rub for the current home buyer: if property values go down after you buy your home, you are stuck if you don’t put any money down or if you put very little down. You will also have a higher monthly payment than if you wait 6 months to buy provided interest rates stay the same.

High Rates

But what happens if rates go up (which is the reason this blog post was suggesting buy now)? Well if you take a $290K mortgage now in today’s market Jan 2011 at 4.5% you get a principal and interest payment of 1469/mo. Now let’s look at the same mortgage 6 months from now and after a 20% decline in the price of the house. The amount borrowed is $232K and assume the interest goes up 1% to 5.5% the payment becomes 1317/mo. That’s a significant drop. Seems like an argument to buy later.

Obviously if rates don’t go up and values goes down then waiting is a good option.

Now consider what happens if you decide to wait until property values drop, but they don’t – now what? Well, waiting on the house value to drop that didn’t and rates go up to 5.5% – worse case your payment goes up to: 1646/mo. That’s an increase in around $180/mo. – Seems like an argument to buy now.

So Buy Now or Wait?

So what do you do? Buy now or later? I don’t have an exact answer and I don’t think that there is a clear answer. It may be a lifestyle or life direction choice more than it is a financial one. If you know you are staying put for awhile and a drop in home prices doesn’t bother you, then maybe buying now is an option if rates are going back up. They have come back up since 2010 so it seems to stand that they will continue to go up – but I make no financial or economic basis for this trend analysis or comparison.

Some Things to Consider

If you are unsure of your employment situation over the next few years and you aren’t putting much money down on the home and you don’t have much money to use to pay off the home if you have to sell and are underwater then waiting might be a good option.

There are many angles to consider – its just not that cut and dried as to what you should do if you are a home buyer.

As a home seller it stands to reason that selling now makes sense if you must and can because of the prediction that home values are going to go down in the first part of 2011. And no one is predicting a jump in home prices any time soon. What does all of this point to – a continuation of the buyer’s market for the foreseeable future.

Reviewing Your Good Faith Estimate

Reviewing Your Good Faith Estimate

Two major things should happen when you apply for a mortgage to buy a home: (1) you should get a good faith estimate of your fees and (2) you should speak to more than one lender and compare the different good faith estimates that you get. The review of your fees for a mortgage is important as the mortgage program and who you get it from will play an important role in your financial future for years to come. Here are some key tips to make sure that everything goes smoothly with your Good Faith Estimate.

  • Review
  • Verify
  • Ask

Review

Reviewing your mortgage good faith estimate is quite a bit different than a reviews of StorageMart and their fee contract; for example if you are planning on storing your personal belongings in a storage facility while you transition into a new home. Before getting a Good Faith Estimate, understand these differences.

Verify

What you need to be careful of is that you actually do get a Good Faith Estimate from your lender versus just an informal estimate of closing costs. A Good Faith Estimate will be the result of applying for a mortgage whereas having an informal conversation with a loan officer about what you can qualify for may only get you an estimate of closing costs. Make sure that you know that a Good Faith Estimate is not the same as an estimate of closing costs.

Ask

That said, when you apply for a mortgage the lender is supposed to send you a Good Faith Estimate within 3 days of your loan application. To ensure that you get the Good Faith Estimate you should specifically ask your loan officer for one. While your loan officer will take care of the Good Faith Estimate, it is up to you to make sure that communicate to your loan officer that you want to get a Good Faith Estimate.

Follow Through

The Good Faith Estimate comes with some federal guidelines that lenders must follow when it comes to the fees, loan programs and interest rates that you are quoting and expecting to get when you sign your mortgage documents. Once you get your GFE, you can then hold your loan officer to the test somewhat when it comes to the fees and interest rate that you are expecting as you navigate your way through the loan process to your loan closing.

First Time Buying a Home – Start by Talking to a Lender

First Time Buying a Home – Start by Talking to a Lender

Recently I was browsing through Realty Times and came across an article published by Carla Hill called First Time Buyers Do’s (find the article here). I decided to read the article as I’m particularly fond of real estate articles about first time home buyers. Mostly, I’m jaded, rather than fond, because many of the real estate articles that address this topic that I have seen leave out the most important step of all – getting in touch with a mortgage lender first before you do anything – this includes buy a home using a VA loan, a FHA mortgage – and most certainly a conventional mortgage.

  • Check your credit
  • Get prequalified
  • Will you qualify?

Check your credit

While Hill’s article covers some nice “do’s and dont’s to get you started” as a first time buyer, not once was it recommended that you should contact a mortgage company to see what you qualify for or to find out if your credit is okay (are there any surprises you don’t know about on your credit report that would prevent you from getting a mortgage)?

Get pre-qualified

In today’s mortgage lending environment, if your real estate agent doesn’t have you get pre qualified first before they talk to you about the type of house you want and the price range of house you want they may be setting you up for a huge letdown. Imagine getting all excited about a home that you want to make an offer on only to find out that you do not qualify for the price range.

Will you qualify?

Mortgage program requirements concerning credit, income and assets are tight here in 2010. As such, you do not want to kid yourself in thinking that qualifying for a mortgage is a piece of cake – no matter what your scores are or your income. Unless you are paying cash, you would best serve yourself to speak to a mortgage person first to ensure that you really do qualify and for what price and payment range you really do fit into.

Look around

Once you have this information in mind, you can legitimately look at what kind of house you want and what price house you can afford. You can also look at putting together your wish list and your needs list. And once you have gone through all of the things leading up to finding the right home for you and your family’s needs you can put in an offer with confidence versus hoping for the best.

This site is for informational purposes only. It is not sponsored or in any way affiliated with the government. If you are in need of a mortgage loan, consult with a licensed mortgage professional. All fair housing and equal housing opportunity laws apply when applying for a mortgage or buying a home. Copyright 2012.