Prospective home buyers may find 2015 their best year to purchase a home. Economic recovery continues along with an improving job market. But the reasons to buy a home in 2015 are related to historically low mortgage rates and recent changes in government-backed programs.
Here are 5 reasons buying a home this year makes sense:
1. Rates are lower than last year this time.
Rates have remained low for the last several years. But while rates are not expected to skyrocket overnight, if they were to go up by just 1 percentage point some consumers could be priced out of the market. During the recession, the rate on the 30-year, fixed-rate loan averaged 4.32 percent. Now, that same 30-year fixed rate loan averaged 3.63% as of Jan. 22 according to mortgage giant Freddie Mac. This same time last year rates were 4.41%. Mortgage rates keep falling and it’s time to close the deal.
2. Buying is cheaper than renting.
In most states it is cheaper to buy than it is to rent despite the rising home prices. According to real estate site Trulia, nationwide homebuyers who remain in their homes for seven years will save an average of 38% over renting. The costs involved with buying a home like broker’s commission, title insurance, legal fees and other closing costs — will be offset by benefits, like tax write-offs and price appreciation. The cheaper costs of buying can primarily be attributed to historically high rental prices and historically low mortgage interest rates.
3. Lower Down Payments.
The 3% down payment mortgage makes a comeback. Fannie Mae and Freddie Mac — two government-backed mortgage companies that buy and guarantee risky mortgages announced that they will begin backing mortgages with down payments of as little as 3 percent of the home’s price. Decreasing the down payment requirement to 3 percent is an effort to open up lending to more low-income and first time buyers. The new loans will only be approved for buyers who buy private mortgage insurance, have a credit score of at least 620 and offer complete documentation of their income. Borrowers will also be required to complete a home-buying education course.
4. Home prices are stabilizing.
Home prices in certain areas like Los Angeles are heating up but overall the pace of housing price growth has slowed considerably. According to Freddie Mac the housing price index soared 10% from September 2012 through September 2013. But in 2014, the index is up just 5%, and Freddie Mac economists expect only a 3% increase for 2015. Real estate site Zillow says “appreciation in home values is slowing definitively after nearly two years of accelerating year-over-year growth.” Homebuyers who were priced out of the market may have an opportunity to buy as prices stabilize.
5. FHA has lowered mortgage insurance premiums.
The Obama administration recently announced there will be lower insurance payments on Federal Housing Administration (FHA) mortgage loans. The FHA mortgage insurance premium will be decreased by half a percentage point. It is estimated that with this slight reduction as many as 250,000 new buyers will be able to purchase a house. Previously FHA had just about priced itself out of competition with giant investors Fannie Mae and Freddie Mac by raising its mortgage insurance premiums several times in recent years. FHA had made itself too expensive and its market share has plunged.
Mortgage insurance premiums are required if you put down less than 20 percent when you purchase a home. It is designed to protect the lender in case the borrower defaults. The premium is included in the borrower’s monthly mortgage bill and varies depending on the type and size of the loan, the down payment amount and the credit of the borrower.