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Home Buyers In 2020 Are Locking In Ridiculously Low Mortgage Interest Rates |
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If there is one trend line that we like to see declining -- it's mortgage interest rates! :-) The interest rates at which buyers are financing their mortgages have been lower and lower and lower as we have progressed through 2020, and are now right around 3.13%. If you are thinking about buying a home in 2020 and IF you can secure a contract on a house despite LOTS of competition from other buyers, you are likely to be financing your mortgage at one of the lowest mortgage interest rates ever seen! Perhaps that is fueling some of surge of buyers currently in the market? | |
Renting or Buying A Home Within A 5 Year Time Horizon |
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If you will only be in your next home for two (or 1, 3, 4 or 5) years -- should you buy that home? Or just rent a home instead? Let's take a look, assuming a price point in the current market of around $175K - which is likely to be a townhouse and might be what you are considering as a first time buyer... As becomes pretty quickly, above, it doesn't necessarily make much sense to buy if you are only going to be in your home for 1 or 2 years -- and once you get to a time horizon of 4 or more years, it almost certainly makes sense to buy a home. For clarity, let's look at how I'm determining the cost of renting and buying this fictional house... The Total Cost of Renting Includes... Monthly rental rate x 12 x # years Yep, that's it The Total Cost of Buying Includes... Monthly mortgage payment x 12 x # years + closing closing costs when buying your home (3.5%) + cost of selling your home (5% + $1K) + potential maintenance costs (1% / y) - appreciation of your home's value (2% / y) - potential tax benefits of interest paid (int x 40% x 25%) Here's a visual (click for a closer look) as to how those numbers line up over a one through five year time horizon... I should also note that it is quite possible to be "just fine" from a financial perspective if you buy and only end up being in the home for a year or two if...
As you are thinking through whether you should buy or rent -- at a $175K price point or otherwise -- feel free to touch base with me and I can give you some feedback and advice based on your overall circumstances. | |
Monthly Housing Costs Decline A Bit In 2020 Thanks To Record Low Mortgage Interest Rates |
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The monthly cost of a mortgage on a median priced house has actually declined a bit this year! For this analysis, I am measuring "monthly housing cost" by determining the mortgage payment amount (principal, interest, taxes and insurance) for a median priced home in Harrisonburg and Rockingham County, if a buyer were financing 80% of the purchase price and paying Harrisonburg real estate taxes. Over the past year...
So, even though prices are higher now than over the past two years, the monthly housing cost for financing 80% of the purchase of a median priced home has actually declined. | |
Mortgage Interest Rates Are Absurdly Low |
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Fortunate are the home buyers who happen to be buying right now -- and locking in super low mortgage interest rates! Over the past year, interest rates have been at an average of 3.62% -- but that has varied widely from being over 4% a year ago, to now being right around 3.25%. Rates have never (ever, ever, ever) been this low! If you are buying right now, you are fortunate to be locking in a very low mortgage interest rate, and it will likely never make sense to refinance! | |
Mortgage Applications, Often A Good Leading Indicator Of Buyer Activity, Rising Quickly! |
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The number of people making applications for mortgages tends to be a good indicator of current and future buyer activity. The graph above shows that mortgage applications in 2020 were a good bit above 2019 through the middle of March and then they took a nose dive. That said, over the past two weeks, the rate of buyers making mortgage applications has started to rise quickly again -- and is nearing the same place it was a year ago at this time. Mortgage applications precede close sales by a month or two (or more) so this may be an early indicator that buyer activity is starting to stabilize and increase again. of note -- this is a national trend - locally, we did not see as much of a drop off in buyer activity in March and April as this graph would suggest. | |
Looking At The Big Picture, Financially, Of Both Selling AND Buying a House |
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If you will be selling your home to buy another, there are a lot of numbers floating around....
Above you will see a spreadsheet I put together to help you think about some of these numbers as you are evaluating if and when you will make a move to a new house. In yellow, are all of the inputs you will need to provide, or that you and I can determine together, such as your current payment, your home's current value, your mortgage payoff, whether you will be putting any additional money into the transaction, etc. In green, I have identified your potential future mortgage payment and the net change in your monthly payment. All of the numbers without a background color will automatically calculate for you. Click here to download this worksheet as an editable Excel file. | |
Refinancing Your Mortgage Might Make Sense |
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This is more of an alert to homeowners, not so much to buyers or sellers -- but if you haven't heard, re-financing your mortgage might make sense right now depending on your mortgage interest rate. The current average mortgage interest rate on a 30 year fixed rate mortgage is 3.29! This is the lowest we have ever seen, ever. If your current mortgage interest rate is higher than 4%, and you plan to stay in your home for the next few years, you should at least chat with a lender to see how these low interest rates could benefit you. You can likely either reduce your mortgage payment, or shorten the remaining life of your mortgage, or both! Feel free to touch base with me if you want some recommendation for local mortgage lenders. | |
Mortgage Interest Rates Hit All Time Low at 3.29% |
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Mortgage interest rates have never been lower than right now. No, really! The current average 30-year fixed rate mortgage is 3.29% and that is the lowest level seen in the 50 years that this rate has been tracked! So, if you're buying a home in the near future, you will be locking in at historically low interest rates. And if your current mortgage is at an interest rate of perhaps 4.5% or higher, it might make sense to refinance! | |
Three Ways To Pay For Mortgage Insurance |
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George Mason Mortgage has an excellent overview of the three main ways to pay for mortgage insurance. But before we go there, what is mortgage insurance? If your down payment is less than 20% of the purchase price, your lender may require that you pay for mortgage insurance to cover their greater risk because of your smaller down payment. Two quick points...
And now, the three main ways to pay for this mortgage insurance...
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Monthly Housing Cost for Median Priced Home Climbs Further in 2019 |
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As should come as no surprise, the monthly cost of housing is increasing -- and has been increasing more quickly over the past several years (2018, 2019) as compared to many prior years. The graph above devises a monthly cost of housing using the median sales price of homes sold in Harrisonburg and Rockingham County and the mortgage interest rate at the time. The payments above assume that a buyer finances 80% of the purchase price at the prevailing rate -- and these housing costs include an estimate of real estate taxes and homeowners insurance. Of interest -- this monthly cost...
Over the next few years, it seems likely we will see a continuation of this trend, as sales prices and mortgage interest rates are both likely to continue to increase. | |
Spend How Much You Want To Spend On A Home, Not Necessarily How Much You Can |
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Most folks who buy a home this year will not be paying cash. An important early stage of the home buying process is to talk to a lender to become pre-approved for a mortgage. As you meet with a lender, remember that there is often a difference between:
If you are looking for a qualified mortgage professional, shoot me an email (scott@hhtdy.com) and I can give you some recommendations. As you are navigating the home financing process, I am happy to help you understand the information you are receiving and the decisions you are being asked to make. There are a variety of loan programs that can likely work well for your situation, but we'll want to make sure you are aware of all of your options. Learn more about the home buying process at BuyingAHomeInHarrisonburg.com. | |
When To Actually Apply For A Mortgage When Buying A Home |
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As Late As Possible
Incredibly Proactive
A Reasonable Middle Ground
I try to encourage all of my clients to at least be in the "reasonable middle ground" sequence as outlined above. This gives them a firm idea of what they can afford and how a home price will compare to a loan payment. This also allows them to make a stronger offer, already having a pre-qualification letter in hand. I strongly discourage my clients from following the "as late as possible" sequence as outlined above. This doesn't help them make the best decisions about which houses to pursue, how far to negotiate, etc. This also doesn't allow us to make as strong of an offer on a house. Occasionally, one of my clients will fall into the "incredible proactive" sequence as outlined above, and wow, this makes the financing process a joy to work through! These buyers have already done so much of their work with the lender before even thinking about which house to buy -- which then allows them to focus on buying, negotiating, inspecting, etc., rather than be bogged down in the process of securing their mortgage. Let me know if you have questions about how I have described these sequences -- and let me know if you would like a few recommendations for lenders in the Harrisonburg area. | |
High Temps, But Low Mortgage Rates Throughout Summer 2019 |
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Mortgage interest rates kept dropping lower - and lower - and lower all summer long! The current average rate for a 30 year fixed rate mortgage is only 3.55%, well below the 12 month average of 4.3%. If we look back even further, we're approaching the lows of mid-2016... All of this adds up to VERY favorable times to be buying a house - in that you can lock in your monthly housing costs at some of the lowest long term interest rates ever seen. | |
Building A Budget When Buying A Home |
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Several buyers have recently asked me about how to determine how much they can and should spend on a home purchase. Those are actually answered differently... CAN -- How much you *can* spend will best be determined through a conversation with a mortgage lender. They will evaluate your income, existing required recurring debt payments, credit score, etc., to tell you the maximum that you can spend on a home. SHOULD -- How much you *should* spend is best determined by calculating what portion of your income you are comfortable spending on housing while still having enough left over for all of your other life expenses. In other words, a budget! I created the budget spreadsheet shown above (download it here) as a starting point for thinking this through. Let me know if you have questions about how to use this spreadsheet. And let me know if you'd like a recommendation on a local mortgage lender. | |
Crunching the Numbers on Both Selling AND Buying a House |
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If you will be selling your home to buy another, there are a lot of numbers floating around....
Above you will see a spreadsheet I put together to help you think about some of these numbers as you are evaluating if and when you will make a move to a new house. In yellow, are all of the inputs you will need to provide, or that you and I can determine together, such as your current payment, your home's current value, your mortgage payoff, whether you will be putting any additional money into the transaction, etc. In green, I have identified your potential future mortgage payment and the net change in your monthly payment. All of the numbers without a background color will automatically calculate for you. Click here to download this worksheet as an editable Excel file. | |
Summer Home Buyers Will Love These Low Mortgage Interest Rates |
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Interest rates climbed nearly all the way to 5% this past Fall -- and over the past year have been at an average of 4.5%. But since the first of the year, mortgage interest rates have been falling, falling, falling, further and further! They are now, unbelievably at 3.99% for a 30 year mortgage. So - if you're contracting to buy a house in the near future you may want to lock your interest rate in sooner rather than later. It's hard to imagine we'll stay under 4% for long. | |
Monthly Housing Costs Actually Decline, A Bit |
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The monthly cost of a mortgage on a median priced house has actually declined a bit this year! For this analysis, I am measuring "monthly housing cost" by determining the mortgage payment amount (principal, interest, taxes and insurance) for a median priced home in Harrisonburg and Rockingham County, if a buyer were financing 80% of the purchase price and paying Harrisonburg real estate taxes. Over the past year, the median sales price has only increased 1%, and the average mortgage rate has declined 6%, which results in a slight decline in the median housing cost -- if you are buying your home, and you have a 20% downpayment. So - monthly housing costs are still relatively high from a historical perspective, but we're not seeing a 12% increase in that monthly cost like we did between 2017 and 2018! | |
Mortgage Interest Rates Are Falling, Falling, Falling |
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In what can only be described as good news for home buyers -- mortgage interest rates keep declining! In November 2017 interest rates had climbed to 4.94% and it seemed we'd soon be seeing 5.something% rates. But then they started to decline again, now all the way back down to 4.35%. If you're planning a home purchase this Spring, this is an extremely enticing time to lock in your interest rate! | |
30 Year Fixed Mortgage Rates Dropped Half Percentage Over Past Two Months |
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Mortgage interest rates have, indeed, steadily declined over the past two months -- from 4.94% down to 4.45%. That is a half of a percentage point, which is a large decline given the range of mortgage rates we're seeing today. So -- now we're back to where we were for much of 2018 -- or at least April through September. Today's buyers will luck out with a low housing payment compared to what they would have expected two months ago -- IF (this is a big if) they can actually find something to buy in this low inventory environment. Where do rates go from here? It's anyone's guess. This recent drop gives me hope that we could spend all of 2019 under 5%. We shall see! | |
Some Perspective on Changes in Mortgage Interest Rates |
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In some ways, my alarm bells are going off!
But yet -- it looks like the average rate for 2018 will only be 0.54% higher than in 2017 -- and the graph above puts that in what might be a somewhat more helpful context. The last red bar (all the way to the right) is an indication of how much the annual average rate will have increased between 2017 and 2018. Any red bar is an increase in the average annual rate. Any blue bar is a decrease in the average annual rate. As such -- the increases we have seen in 2017 and in 2018 are a far cry from the crazy increases seen in 1978, 1979, 1980 and 1981. And there have been several times in the past thirty years when there has been a year or two of increases of less than 1% in a year, that were then followed by decreases in subsequent years. So -- back to real rates -- you could get a mortgage with a rate less than 4% a year ago, and now it would be just under 5%. And it's possible that the rates will keep rising in 2019. But in the big picture:
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Scott Rogers
Funkhouser Real
Estate Group
540-578-0102
scott@funkhousergroup.com
Licensed in the
Commonwealth of Virginia
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