If you’ve been sitting on the fence between homebuying and renting, 2016 is shaping up to be a great time to purchase a home. Changes in home price growth, mortgage rates, loan options and the loan process could be just what you need to get off the homebuying sidelines.
Home prices are still accelerating.
Many industry experts are expecting home price growth rates to slow down after years of volatility. According to CoreLogic’s most recent Home Price Index, home prices increased annually by 6.9% in the month of January.
Though rising home values are a positive for homeowners, a slowdown in price gains would be good for homebuyers, specifically first-timers, trying to make their way into the housing market. Low mortgage rates coupled with solid job and income gains are contributing to rising home prices.
At the end of 2015, CoreLogic predicted home price growth to slow to an increase of 4-5% in 2016. Now they are forecasting home prices to grow by 5.5% by January 2017. Getting ahead of rising home prices is beneficial to any homebuyer’s mortgage affordability.
Mortgage rates are still near historic lows but are likely to trend higher toward the year’s end.
The Fed voted to increase the federal funds rate at their December meeting. Though the rate hike isn’t directly connected to long-term mortgage rates, gradual increases can be expected over the next several years.
Even with the increase of the federal funds rate, mortgage rates have stayed low in the first few months of 2016, causing a surge in the amount of purchase and refinance applications. But we can’t expect mortgage rates to stay this low forever.
A bump in mortgage rates can decrease mortgage affordability and possibly shut out some potential homebuyers from the market altogether. Some investors are predicting early 2016 to be the last time homebuyers will be able to take advantage of the historically low mortgage rates we’ve seen over the past several years.
The rental market is going to get pricier.
Currently, nearly half of all U.S. renters are considered “cost burdened,” meaning they are spending more than 30 percent of their income on rent. Rental prices hit an all-time high in 2014 and rental vacancy hit a 30-year low in June 2015, meaning that supply is not keeping up with demand which is boosting prices significantly. According to a Rent.com survey, rental rates are expected to jump by 8% in 2016.
Even though mortgages could eventually become more expensive with a bump in the federal funds rate, mortgage rates would need to rise to approximately 6.5% before the cost of buying was equal to the cost of renting on a national level, according to Trulia.
The enactment of TRID means less loan paperwork and more benefits for borrowers.
Buying a home isn’t as simple as signing on a dotted line. In October 2015, the Consumer Financial Protection Bureau made changes to simplify some of the confusing fine-print paperwork for mortgage borrowers. The TILA-RESPA Integrated Disclosure rule, also known as TRID, combines four existing disclosure documents into two forms, a loan estimate and closing disclosure.
The loan estimate is meant to help borrowers better understand the costs, features and risks of their mortgage and must be received within three business days (Monday-Friday, excluding federal holidays) of a borrower’s application.
The closing disclosure helps borrowers understand the cost of their mortgage transaction, including their interest rate, monthly payments and costs to close the loan. This must be received by the borrower at least three business days (Monday-Saturday, excluding federal holidays) prior to closing.
Low down payment loan options have never been better.
Though it’s a common homebuying misconception that a 20 percent down payment is needed to purchase a home, there are several options for homebuyers who struggle with saving for a down payment. Options include:
- USDA Rural Development – no down payment requirement
- HomeReady – 3% down payment requirement
- @HomeIllinois – as little as $1,000 down
- VA Loan – no down payment requirement
- 1stHomeIllinois – offers $7,500 in down payment and/or closing cost assistance to first-time homebuyers
Another plus for FHA borrowers is that in January 2015, the U.S. Department of Housing and Urban Development (HUD) lowered annual FHA mortgage insurance premiums by 50 basis points from 1.35% to 0.85%, making this loan option even more affordable for homebuyers.
The best way to determine if you are ready and eligible to buy a home in 2016 is to get pre-approved or get a loan commitment. For more information about buying and financing your first home in 2016, download our free Mortgage 101 Handbook.
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