Buying Smart Is now a good time to buy a home? Many buyers feel the answer is, “Yes, but it depends….” Depends on what, you may ask? In home buying, as with any large purchase, there are several factors to consider. INTEREST RATES Interest rates are currently at historical lows. If they were the only factor to look at, now is a very good time to buy a home. Yet, a number of economic forces threaten to push interest rates up in the months and years to come. And as mortgage interest rates rise, your purchasing power falls. For example, if you can afford $1,265 per month at 4.5%, you can afford a $250,000 home. But if rates jump 200 basis points to 6.5%, then you can only afford a $200,000 home. So if looking at interest rates alone, now is a very good time to buy. As with anything in the future, there are several factors that could drive interest rates up. The Federal Reserve plays a huge role in interest rates. When the Fed eventually raises some benchmark rates, mortgage rates will go up. The Fed also has a large portfolio of mortgage securities to sell, which will also make rates go up. And, inflation needs to be a consideration. As inflation increases, interest rates will rise. When will all these factors affect interest rates? There is no exact formula that can determine when. But odds show that with the factors listed above, interest rates will begin to rise. PRICE If you think future interest rates are hard to determine, home prices are in the same boat. The housing market across the nation is officially in double dip territory, as national prices have fallen below their recession lows. The home buyer credit created a false bottom for the market. When it was removed, prices began to decline again. And with any purchase, you will want to shop and compare. Is the home fairly priced relative to recent comparable market sales in the area for similar properties? Are there foreclosed homes or vacant homes in the neighborhood? Empty unstable neighborhoods have a higher risk of vandalism along with downward price spirals. FINANCING Banks have tightened their lending requirements since the housing bubble burst. With tighter requirements it makes it harder to qualify for financing. Your credit history is more important than ever and banks may begin to require a larger down payment in the future. And depending on what type of risk you pose as a borrower, they might even demand a high interest rate. YOU Another important factor when determining whether it’s a good time to buy a home is your personal situation. A home should be viewed as a long-term purchase. And when you purchase a home, you hope you are financially better off down the road than you are today. Over the next few years, the housing market will continue to be relatively soft, so selling a home might not be a quick, easy process. You also need to be comfortable with your financial situation. If you are worried about losing your job, then buying a home is not a good idea. Over the past few years, thousands of foreclosures were driven by job loss. Know what you can afford. The economy is still unstable and most shouldn’t expect large wage growth. Don’t stretch yourself to the point where you can not afford the mortgage payments. A good first step before looking for a home is to talk with a trusted mortgage advisor to see what you can truly afford. You want a house to be a joy, not a burden. It will also be important to work with a Realtor who understands your needs and desires. If inflation rages over the next few years, buying a home might be a smart move. Fixed interest rate debt is a great hedge for inflation. Inflation will help drive up nominal wages, making house payments easier to afford. Weigh all the factors Being a home owner can be very exciting. And if you do some research and weigh in all the factors, it could possibly be a move for you right now. In this kind of economy, if you have a stable job and expect to live in the house for 5 or more years, then the benefits of buying in the near-term appear to outweigh the costs at this time. If you do find it will work for you at this time, here are a few guidelines: 1) Find a house you love 2) Find a house that makes sense for your financial situation 3) Find a house you will have for more than 5 years 4) Lock in a long-term mortgage Work with your mortgage advisor to determine which mortgage options work best for you. If you have mortgage lending questions or would like to discuss home mortgage loan options, we’d be happy to sit down with you. Just call or email to set up an appointment: Gloria Bohn, 605-665-4951, gbohn@firstdakota.com Sandy Brown, 605-624-5845, sbrown@firstdakota.com Or go to www.firstdakota.com to complete our prequalification application. n Editorial provided by First Dakota National Bank Your dreams are too big to fail. Financing your home can be a smooth and efficient process when you have the right resource. Our mortgage specialists provide you with reliable solutions to make your dreams come true. TALK TO SANDY BROWN OR GLORIA BOHN TODAY! Vermillion :: 624-5555 :: 111 Court Street Yankton Downtown :: 665-7432 :: 225 Cedar Street Yankton North :: 665-4999 :: 2105 Broadway Avenue FirstDakota.com 4 n TODAY’S HOME – SPRING 2013 Member FDIC