Is it really 2016 already? For those of you who happen to be planning on buying a home in the new year—or even just trying to—there’s a whole lot to celebrate. Why? A variety of financial vectors have dovetailed to make this the perfect storm for home buyers to get out there and make an (winning) offer. Here are six home-buying reasons to be thankful while ringing in the new year:
Reason No. 1: Interest rates are still at all-time lows
Even though they can shoot up at any second, it’s still a fact that interest rates on home loans are at all-time lows, with a 30-year fixed-rate home loan still anticipated around 4%.
“Remember 18.5% in the ’80s?” asks Tom Postilio, a real estate broker with Douglas Elliman Real Estate and a star of HGTV’s “Selling New York.”“It is likely that we’ll never see interest rates this low again. So while prices are high in some markets, the savings in interest payments could easily amount to hundreds of thousands of dollars over the life of the mortgage.”
Reason No. 2: Rents have gone through the roof
An additional reason buyers are lucky is that rents are going way up! In fact, rents outpaced home values in 20 of the 35 largest housing markets in 2015. Likewise, according to the 2015 Rent.com Rental Market Report, 88% of property managers raised their rent in the past 12 months, and an 8% hike is anticipated for 2016.
“In most metropolitan cities, monthly rent is comparable to that of a monthly mortgage payment, sometimes more,” says Heather Garriock, mortgage agent for The Mortgage Group. “Doesn’t it make more sense to put those monthly chunks of money into your own appreciating asset rather than handing it over to your landlord and saying goodbye to it forever?”
Reason No. 3: Home prices are steady
For the first time in years, prices that have been climbing steadily upward are stabilizing, improving a level playing field that helps buyers negotiate stonger with sellers, even in hectic markets.
“Local markets vary, but generally we are experiencing a cooling period,” says Postilio. “At this moment, buyers have the opportunity to capitalize on this.”
Reason No. 4: Big down payments aren’t always required
Probably the biggest snag that prevents renters from becoming homeowners is coming up a down payment. But today, that lump sum can be smaller, thanks to a variety of programs to help home buyers. For example, the new Fannie Mae and Freddie Mac Home Possible Advantage Program allows for a 3% down payment for credit scores as low as 620.
Reason No. 5: There are ways around Mortgage Insurance
If you do decide to put less than 20% down on a home, you are then required to have mortgage insurance (basically in case you default). A workaround to handle this, however, is to take out a loan from the Federal Housing Administration—a government mortgage insurer that backs loans with down payments as low as 3.5% and credit scores as low as 580. The fees are way down from 1.35% to 0.85% of the mortgage balance, meaning your monthly mortgage total will be much lower if you fund it this way. In fact, the FHA predicts this 37% annual premium cut will bring 250,000 first-time buyers into the market. Why not be one of them?
Reason No. 6: You’ll score significant tax breaks
Tax laws continue to favor homeowners, so you’re not just buying a place to live—you’re getting a tax break! The biggest one is that unless your home loan is more than $1 million, you can deduct all the monthly interest you are paying on that loan. Homeowners may also deduct certain home-related expenses and home property taxes.