By Terry Savage
He (or she) who hesitates is lost! It’s an old saying, and right now it applies to the housing market. Yes, the economic headlines are still gloomy, many are unemployed and foreclosures are actually rising. But paradoxically, those obvious facts are creating one of the best home-buying opportunities in history.
Not only have prices fallen by 30 percent or more in many locations, mortgage rates last week hit 60-year lows. The average rate on a 30-year fixed-rate mortgage fell below 3.5 percent for the first time since the 1950s. The average rate on a 15-year fixed-rate mortgage is now 2.8 percent.
Combine low rates and low prices, and you have an incredible opportunity. But for most people, that opportunity will be obvious only in hindsight. We are all conditioned to remember only the recent past. And, for housing, that recent past is scary. Gone are the stories of profits made on the sale of a home. They have been replaced with eviction notices and lost equity.
Just as no tree grows to the sky, no market continues in one direction forever. But only a few people have the discipline to step back, gain perspective and take the risk of going against the obvious current trend.
Owning your own home is still a centerpiece of the American dream. It was the dream of the pioneers who took wagon trains west, seeking their own land. It was the dream for the immigrants who arrived on our shores. It was the dream of the post-World War II generation who built the suburbs. It was the city condo dream for a generation of yuppies. And home ownership will once again be the dream for the next generation of American prosperity.
It’s just that the benefits of building equity with a tax-deductible mortgage are less apparent now than they appeared to be just a decade ago, when homebuyers never dreamed that home prices could fall. That fear of losing money on a home is one of the factors making this the time to buy — if you have good credit and a down payment. Fear helps push prices down, creating the opportunity for future gains.
I have always advised that your house is not your “piggy bank.” But properly financed and under the right circumstances, the single-family home will once again become the foundation of middle-class financial security.
And for those who already own a home, and may have refinanced in the past, it’s time to do another refinancing and lock in these record low rates. The rest of the world has been sending money to the presumed safety of the U.S. dollar, helping the Fed keep rates low. But if Europe survives as a single economic unit, or if American debt problems become overwhelming, you can be sure that dollar fears will push rates higher.
Whether you’re getting a mortgage for a new purchase or considering a refinancing, it pays to be creative and to compare rates and deals online. No longer is your hometown bank the automatic place to start — although you should definitely check with your local lenders to see if they can match the best rates online.
The place to start looking is Bankrate.com. They’ll quote for both new purchases and refinancings, both 30-year and 15-year fixed-rate deals. You’ll input your city and state, so they can give you quotes from lenders who can actually do your deal. And they offer quotes on mortgages with either 20 percent or 5 percent down. (The latter are more difficult to obtain.) You’ll be asked to input your credit score, as well. Bankrate.com stands behind these quotations, so you know you’re not being offered a teaser deal.
It makes absolutely no sense to take an adjustable-rate mortgage now. The slightly lower rate is not worth the upside exposure if inflation fears should return. The whole idea of making this purchase now is to lock in this financial opportunity.
Be sure to compare deals by using the APR — annual percentage rate, which includes the effect of points you might pay. In fact, since banks are flush with money to lend to those with good credit, you should avoid paying any points on your mortgage and refinancing.
Remember that property taxes and insurance will add to your monthly payment. You can likely get a better deal if you purchase homeowners insurance, paying the bills yourself using an automatic debit system.
Here’s a tip from my mortgage experts, one that I had never heard of before. You can do a deal with “negative points.” What’s that? A very creative way to avoid out-of-pocket expenses for a new survey, title search and appraisal.
You know that you can pay points to “buy down” your mortgage rate. People have been doing that for years, but it makes no sense in today’s low rate environment. “Negative points” is just the reverse. After you do your deal and are told how much you must pay upfront in closing costs and fees, you can offer to pay a slightly higher rate on your mortgage — to avoid those out-of-pocket costs! And that could make enough of a difference to give you a larger down payment or make refinancing affordable.
Sure, there’s bad news about the economy, jobs and housing. But America will recover — and you’ll wish you had taken advantage of a once-in-a-generation opportunity.