Either Way, You’re Still Paying a Mortgage

Either Way You're Paying a Mortgage | Simplifying The Market

There are some people that have not purchased a home because they are uncomfortable taking on the obligation of a mortgage. Everyone should realize that, unless you are living with your parents rent free, you are paying a mortgage – either your mortgage or your landlord’s.

As a paper from the Joint Center for Housing Studies at Harvard University explains: 

“Households must consume housing whether they own or rent. Not even accounting for more favorable tax treatment of owning, homeowners pay debt service to pay down their own principal while households that rent pay down the principal of a landlord plus a rate of return. That’s yet another reason owning often does—as Americans intuit—end up making more financial sense than renting.”

Also, if you purchase with a 30-year fixed rate mortgage, your ‘housing expense’ is locked in over the thirty years for the most part. If you rent, the one guarantee you will have is that your rent will increase over that same thirty year time period.

As an owner, the mortgage payment is a ‘forced savings’ which will allow you to have equity in your home you can tap into later in your life. As a renter, you guarantee the landlord is the person with that equity.

Bottom Line

Whether you are looking for a primary residence for the first time or are considering a vacation home on the shore, owning might make more sense than renting since home values and interest rates are still at bargain prices.

Buying a Home with as Little as 3-5% Down Payment

Buying a Home for as Little as 3-5% Down | Simplifying The Market

We have recently reported on the misconception that many buyers have regarding the down payment necessary to purchase a home. Multiple studies reveal that 40-50% of Americans believe you need between 15-20% of a down payment to be eligible to purchase a home.

This misconception came about as the government just last year debated new guidelines for residential mortgages because of the housing collapse in 2007. Some were arguing that there should be a minimum of 20% or even 30% down payment on all mortgage loans. However, those standards were never implemented.

To counter this misunderstanding, Christina Boyle, Freddie Mac’s VP and Head of Single-Family Sales & Relationship Management, in a recent Executive Perspectives explained that a person “can get a conforming, conventional mortgage with a down payment of as little as 5 percent”.

3% Down Payments Available Soon?

Just last week, Federal Housing Finance Agency Director Mel Watt announced that mortgages requiring only a three percent down payment may soon be available:

“To increase access for creditworthy but lower-wealth borrowers, FHFA is also working with the Enterprises to develop sensible and responsible guidelines for mortgages with loan-to-value ratios between 95 and 97 percent. Through these revised guidelines, we believe that the Enterprises will be able to responsibly serve a targeted segment of creditworthy borrowers with lower-down payment mortgages by taking into account “compensating factors.”

Bottom Line

If you are saving for either your first home or that perfect move-up dream house, make sure you know all your options. You may be pleasantly surprised.

Gallup Poll: Real Estate Best Long-Term Investment

Gallup Poll: Real Estate Best Long-Term Investment | Simplifying The Market

The Gallup organization conducts an annual report entitled the Economy and Personal Finances Poll, which asks Americans to choose the best option for long-term investment.

It was no surprise that real estate returned to the top position over other investment categories (gold, stocks/mutual funds, savings accounts/CDs and bonds).

Back in 2011, gold was the most popular long-term investment among Americans. However, with the housing market improving across the U.S. and home prices rising, more Americans now consider real estate the best option for long-term investments.

Gallup Poll: Real Estate Best Long-Term Investment | Keeping Current Matters

The poll also revealed that real estate was considered to be the best long-term investment by all four subgroups by age and two out of three by income:

Gallup Poll: Belief By Age Gallup Poll: Belief By Income Level

 

3 Questions to Ask Before Buying a Home

3 Questions to Ask Before Buying a Home | Simplifying The Market

If you are thinking about purchasing a home right now, you are surely getting a lot of advice. Though your friends and family have your best interests at heart, they may not be fully aware of your needs and what is currently happening in real estate. Let’s look at whether or not now is actually a good time for you to buy a home.

There are three questions you should ask before purchasing in today’s market: 

1. Why am I buying a home in the first place?

This truly is the most important question to answer. Forget the finances for a minute. Why did you even begin to consider purchasing a home? For most, the reason has nothing to do with finances. A study by the Joint Center for Housing Studies at Harvard University reveals that the four major reasons people buy a home have nothing to do with money:

  • A good place to raise children and for them to get a good education
  • A place where you and your family feel safe
  • More space for you and your family
  • Control of the space

What non-financial benefits will you and your family derive from owning a home? The answer to that question should be the biggest reason you decide to purchase or not.

2. Where are home values headed?

When looking at future housing values, Home Price Expectation Survey provides a fair assessment. Every quarter, Pulsenomics surveys a nationwide panel of over one hundred economists, real estate experts and investment & market strategists about where prices are headed over the next five years. They then average the projections of all 100+ experts into a single number.

Here is what the experts projected in the latest survey:

  • Home values will appreciate by 4% in 2015.
  • The cumulative appreciation will be 19.5% by 2018.
  • Even the experts making up the most bearish quartile of the survey still are projecting a cumulative appreciation of over 11.2% by 2018.

3. Where are mortgage interest rates headed?

A buyer must be concerned about more than just prices. The ‘long term cost’ of a home can be dramatically impacted by an increase in mortgage rates.

The Mortgage Bankers Association (MBA), the National Association of RealtorsFannie Mae and Freddie Mac have all projected that mortgage interest rates will increase by approximately one full percentage over the next twelve months.

Bottom Line

Only you and your family can know for certain the right time to purchase a home. Answering these questions will help you make that decision.

Billionaire Says Real Estate is Best Investment Possible

Billionaire Says Real Estate is Best Investment Possible | Simplifying The Market

Billionaire money manager John Paulson was interviewed at the Delivering Alpha Conference presented by CNBC and Institutional Investor. During his session he boldly stated:

“I still think, from an individual perspective, the best deal investment you can make is to buy a primary residence that you’re the owner-occupier of.”

Who is John Paulson?

Paulson is the person who, back in 2005 & 2006, made a fortune betting that the subprime mortgage mess would cause the real estate market to collapse. He understands how the housing market works and knows when to buy and when to sell. What do others think of Paulson?

According to Forbes, John Paulson is:

“A multibillionaire hedge fund operator and the investment genius.”

According to the Wall Street Journal, Paulson is:

“A hedge fund tycoon who made his name, and a fortune, betting against subprime mortgages when no one else even knew what they were.”

Why does he believe homeownership is such a great investment?

Paulson breaks down the math of homeownership as an investment:

“Today financing costs are extraordinarily low. You can get a 30-year mortgage somewhere around 4.5 percent. And if you put down, let’s say, 10 percent and the house is up 5 percent, which is the latest data, then you would be up 50 percent on your investment.”

How many are seeing a 50% return on a cash investment right now?

Paulson goes on to compare the long term financial benefits of owning verses renting:

“And you’ve locked in the cost over the next 30 years. And today the cost of owning is somewhat less than the cost of renting. And if you rent, the rent goes up every year. But if you buy a 30-year mortgage, the cost is fixed.”

Bottom Line

Whenever a billionaire gives investment advice, people usually clamor to hear it. This billionaire gave simple advice – if you don’t yet live in your own home, go buy one.

Buying A Home? You Don’t Need To Do It Alone

Buying a Home? You Don't Need to Do it Alone | Keeping Current Matters

Discover Home Loans conducted an interesting survey that revealed how prepared homebuyers are for the actual mortgage process.

The survey reported that 94% of prospective buyers believe they are making a good investment decision if they buy a home. The survey also explained that 66% of buyers reach out to real estate agents to help determine whether buying a certain home would be a good investment.

However, there is less certainty regarding the mortgage process.

Most buyers overwhelmed

The majority of potential buyers are actually overwhelmed with the plethora of information available about the home financing process.  Here are some interesting highlights from the report:

  • Nearly 66% feel overwhelmed with the amount of information available
  • 76% of those under the age of 30 feel overwhelmed
  • 76% of first time buyers feel the same way
  • 54% of those buyers who have previously owned also were overwhelmed
  • 59% of buyers turn to mortgage bankers to help evaluate mortgage terms and comparing offers
  • 49% of buyers turn to real estate agents to help evaluate mortgage terms and comparing offers

There is help available…use it!

Cameron Findlay, chief economist at Discover Home Loans, gives great advice:

“The industry is becoming more transparent in an effort to help homebuyers become informed about changes that may affect their process. The sheer amount of information can lead to confusion and stress. Those looking to purchase should work closely with their lender and realtor to make sure they are comfortable with mortgage terms and understand the impact a loan will have on their finances.”

Bottom Line

Purchasing a home can put great pressure on a family. Reach out to the best mortgage and real estate professionals in your market for assistance throughout the process.

A Home’s Cost vs. Price Explained

A Home’s Cost vs. Price Explained | Keeping Current Matters

In real estate there is a difference between COST and PRICE. As a seller, you will be most concerned about ‘short term price’ – where home values are headed over the next six months. As either a first time or repeat buyer, you must not be concerned about price but instead about the ‘long term cost’ of the home.

Let us explain.

Recently, we reported that a nationwide panel of over one hundred economists, real estate experts and investment & market strategists projected that home values would appreciate by approximately 4% from now to the end of 2015.

Additionally, Freddie Mac’s most recent Economic Commentary & Projections Table predicts that the 30 year fixed mortgage rate will be 5.0% by the end of next year.

What Does This Mean to a Buyer?

Here is a simple demonstration of what impact these projected changes would have on the mortgage payment of a home selling for approximately $250,000 today:

The Cost of Waiting A Year | Keeping Current Matters

Don’t Wait! Move Up to the Home You Always Wanted

Don't Wait! Move Up to the House You've Always Wanted | Keeping Current Matters

Now that the housing market has stabilized, more and more homeowners are considering moving up to the home they have always dreamed of. Prices are still below those of a few years ago and interest rates are still below 5%.

However, sellers should realize that waiting to make the move while mortgage rates are increasing probably doesn’t make sense. As rates increase, the price of the house you can buy will decrease.

Here is a chart detailing this point:

Buyer's Purchasing Power | Keeping Current Matters