by The LizLuke Team
Today’s home buyers are facing increasing mortgage rates and home sales prices and low inventory in many markets. Not to mention, recent tax policy changes. So, what’s a potential homebuyer to do?
Take a page from our playbook below to better prepare and navigate your home buying experience.
Get perspective
Relatively speaking, "The fours are not a terrible place to be," said Skylar Olsen, director of economic research at Zillow. Average 30-year, fixed-rate mortgages reached 4.45 percent, a record high since 2014, last month. However, this number is still historically low.
What do nominal rate increases cost the home buyer after all?
The latest Long & Foster Real Estate data reported a median home sales price of $470,000 in August, 2018. Home buyers securing a 30-year loan at the current rate of 4.5 percent, with no down payment, would pay $337,312 in interest over the life of the loan. At 5 percent, interest costs rise to $438,302 - about a $100,000 difference in total, but only a $142 increase in your monthly payment.
While those numbers seem hefty, pre-recession home buyers faced interest rates of 6.5 percent in the summer of 2007.
Your credit will largely determine the rate you get, so keep that clean. Lock in your rate when you are ready. Rates vary day to day and timing it well is more luck than skill, Olsen said.
The golden rule
Don't buy more house than you can afford. Think about the practicality of your future home as a place to live, not an investment. Put your affordability in bounds by reviewing your latest credit report and obtaining pre-approval from a lender.
Work with a professional Realtor
This is no market for the faint of heart. Home buyers should prepare to face a tight inventory and competitive offers from other buyers. Teaming up with an experienced real estate professional, who has likely been to the negotiating table more times than you have, is a smart move. Realtors assist buyers to craft better deals with tactics like offering a bigger down payment, more earnest money or a shorter closing time. They’ll also walk you through an escalation clause. In such a clause, a buyer agrees to pay x price for a home, but if the seller receives an offer higher than x, the buyer is wiling to increase their offer to y.
What about taxes?
Tax laws are not as generous as they once were for homeowners. Down from the prior limit of $1 million, homeowners can deduct interest paid on the first $750,000 of a loan for a newly purchased first or second home - a difference of $250,000.
The unlimited federal deduction for state and local income and sales tax has also been reduced. Taxpayers may deduct up to $10,000 in combined property, state, and local income taxes, often affecting those in areas with heavy tax burdens the most.
Stay focused
Whether or not you buy now or later, stay the course for eventual homeownership. Vice President of Communications of the National Foundation for Credit Counseling, Bruce McClary, reminds buyers, "There is an investment value in homeownership but time is a big factor. It's slow and steady because there are peaks and valleys. It can be a roller coaster at times.”
Novice and veteran home buyers alike may find it tricky to navigate the current market. The LizLuke Team provides clients with excellent guidance, backed by exceptional expertise, in order to make sound real estate decisions. Call, text or email The LizLuke Team today - we’ll be by your side every step of the way.
For more information, contact Elizabeth Lucchesi of The LizLuke Team at elizabeth@lizluke.com or 703.868.5676.
