Sunday, June 21, 2015

Interest rates going up - buy now!!

If you haven't been following the real estate market at all, but have been toying with buying a home soon, now is the time to do so!

Rates are expected to go up very soon as the Federal finally raises the interest rate that was dropped to historic lows after the 2008 recession. Many economists feel that it is time to start raising it back up - slowly of course.

What does this mean?

Well, take the the average of a $300,000 home in my area. Under an FHA loan with 8% down ($24,000) you can expect to get an interest rate between 3.75% and 4.75% percent assuming good credit. This makes monthly payments between $1590.70 and $1752.25 a month (including average taxes, PMI, etc.)

If the rate goes up it can go up anywhere between .05% to 1.5%. Most people think it'll be the low end, but either way the rate will start rising slowly over the next few years. This means the same loan will now be 4.25% at the low and and 5.25% at the high end, giving us payments between $1670.25 and $1836.58 a month.

That is not a lot of difference per a month, but adds up over 15, 20, or 30 years. But lets assume mortgage rates go back to where they were in June 2008 at 6.32%. That same loan will cost $2024.46 a month! That is a minimum of $272.21 a month difference!!! Granted, we probably won't see those types of rates for at least a year, but it will be happening again soon.

A lot of my clients are seeing these rates and purchasing homes as investments. A few clients are flipping them yet (which I've always maintained is a BAD idea unless you really know what you're doing,) but a lot more are holding on to them as rental properties until the time is right to sell.

The bad news is that this is shrinking the market even further. A local home was on the market at $344,000. It sold SEVEN DAYS later at $380,000 due to people bidding on it because of it's location.. I have the feeling that if the listing agent had put it at $365,000 or even $370,000 that bidding would have hit $400,000 for a home that last sold in 1972 for $34,000 and has had very few updates since then.

So as you can see, now is the time to buy a home! Visit your local real estate office right now!

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