There is no doubt about it; it's getting more and more expensive to write out a monthly rent check. If you've been thinking about purchasing a home, here are eight good reasons why you should buy sooner than later.
Home prices are increasing.
The median existing home price in July 2015 was $234,000, according to the National Association of Realtors. This is a 5.6% gain since July 2014. This July marked the 41st consecutive month of year-over-year price gains.
The increase in prices are resulting in more equity for current homeowners, and those homeowners are using that equity for down payments on their next home purchase. The prospect of higher mortgage rates and home prices, are encouraging households to buy now, according to NAR Chief Economist Lawrence Yun.
FHA loans are better than ever for homebuyers.
FHA loans are often referred to as "first-time homebuyer loans" because of their low down payment requirement and low interest rates, though they're available to repeat homebuyers as well as first-timers.
In January 2015, the FHA reduced its mortgage insurance premiums for the first time since 2001, creating an even more attractive option for first-time buyers in need of home financing. As of January 26, 2015, the U.S. Department of Housing and Urban Development (HUD) lowered annual FHA mortgage insurance premiums from 1.35% to 0.85% on 30-year fixed rate mortgages for new FHA loans of $625,000 or less.
The HUD is predicting the new MIP change to spur 250,000 homebuyers to purchase their first home in the next three years.
Rental rates are growing exponentially.
Annual rent inflation hit 3.5% in November 2014, the highest rent acceleration in six years, according to the Bureau of Labor Statistics. In June 2015, rental vacancies hit their lowest percentage since 1985.
Because of this economists are expecting rental rates to continue increasing at a steeper rate, with rental prices already having climbed 3.5 percent in the last 12 months through June 2015.
Interest rates are still near historic lows but possibly not for long.
While mortgage rates are influenced by various factors, one of those factors has the potential to influence an uptick in mortgage rates in the near future.
It has been widely speculated that the Federal Reserve will raise the federal funds rate sometime this year, with some economists predicting as early as this month. While the Fed doesn't directly control mortgage rates, their policymaking in regards to the target for the federal funds rate has a ripple effect on mortgage interest rates.
While even a small jump in the mortgage rates will still keep mortgage interest rates near historical lows, that small jump can increase monthly mortgage payments and affect your overall mortgage affordability.
Credit requirements have eased.
A Wells Fargo survey found that two-thirds of Americans believe they need a "very good" credit score to buy a home, with 45% of those respondents thinking a "good" credit score is over 780. In the mortgage world, anything over 780 is considered "excellent" or "top tier" while scores over 660 are considered "good" credit.
While a high credit score indicates that you are a responsible borrower and will likely get you a lower interest rate, credit score requirements are dictated by the loan type you are eligible to use. A minimum score of 620 is required by all loans delivered to Fannie Mae. Currently, Compass Mortgage has the ability to finance FHA loans with credit scores as low as 580.
Homeowners benefit come tax seasons.
Tax deductions are another large benefit of homeownership. Homeowners can deduct mortgage interest (up to $1 million for a first or second home), points (in the year they were paid), private mortgage insurance, property taxes, etc.
Homeowners who also choose to sell their home can earn up to $500,000 (for married taxpayers) or $250,000 (for single taxpayers) on the sale and pay no federal income tax.
Equity is beneficial to homeowners.
Speaking of rising home prices, building equity is one of the biggest benefits of homeownership. Whether you choose to use it toward a down payment on your next home purchase, financing large home improvements, or paying for your child's college tuition, there are several ways to build equity and use it to your advantage over time.
Homeowners have consistency in their housing payment with a fixed-rate mortgage.
In 2014, U.S. renters collectively spent over $441 billion in rent, up nearly 5 percent or $20.6 billion from 2013, according to a Zillow report. Those figures indicate that on average, every U.S. renter spent $26 more per month than in the previous year.
Homeowners with a fixed-rate mortgage enjoy knowing their housing payment is going to remain the same for the life of their loan, unlike rental rates.
As always the first step in homebuying is meeting with a mortgage banker for a pre-approval or loan commitment. If you're interested in buying your first home, download our free Mortgage 101 Handbook for everything you need to know about home buying and financing.