How to Buy a House in the Next 5 Years

Nearly half, 49%, of U.S. adults who currently do not own a home say they plan to purchase one within the next five years, according to a new Gallup Poll.

The results, based on interviews with 502 non-homeowners, also showed that an additional 20% of people say they plan to purchase a home in the next 10 years as well. In total, this leaves just 28% of Gallup respondents who say they will remain renters for the near future.

So, is now really the right time to buy a house? As Forbes and others have reported time and time again, it really depends on you and your personal goals. Truly, there is no right or wrong answer to the rent vs. buy conundrum, but there are plenty of right answers when it comes to what you need to consider before dropping your life savings on the white picket fence of your dreams.

“Rising interest rates could stop future homeowners from purchasing. The Fed is expected to raise rates multiple times in 2017,” Nicholas Lynch, Ph.D., professor of accounting at California State University Chico, said noting that rates could be between 5% and 6% by the end of 2017. “A seller’s market could also keep first time buyers out as in some markets the inventory for homes is low, which drives up prices. As rates increase it will probably take two years for home prices to decrease,” Lynch added.

Indeed, Gallup also noted in its poll, housing supply is not keeping up with current demand in many markets. Home prices, according to the real estate listing site Redfin, continue their upward trajectory, perhaps due to the fact that the number of homes for sale fell for the 18th consecutive month in March. In fact, there was a 13% decrease in homes available for sale year-over-year from March 2016 to March 2017, according to Redfin. Beyond supply, homes are also seeing multiple bids and sales happening faster than ever before. The typical home in America, RedFin reported, went under contract in just 49 days.

“Today’s market is pretty crazy,” Lynch said, adding that one silver lining with the housing market’s limited supply may be a new construction boom. “New home builders are booked out a year or more,” Lynch said. “With rates still low the best time to buy in today’s market could be now as rates will rise and it will take time for prices to come down.”

So how can you compete in a market oversaturated with buyers? Simple: Be prepared.

To help would-be buyers, Compass Estate Director Diana Braun and Compass Realtor Jasmine Comino answered a few of our questions via email on when to buy, how to buy, and exactly how much cash you really need to afford that ever challenging down payment.

Stacey Leasca: What is the very first thing someone should do when considering buying their first home?

Diana Braun and Jasmine Comino: Get pre-approval from a lender so that they know how much they can afford. It’s important to remember that lenders take a lot of different factors into account when determining what a buyer can qualify for, so never start your search based on an assumption, find out exactly what you can spend. And, unless you’re paying all cash, no seller would accept an offer without a pre-approval letter.

Leasca: Ideally, what percent down payment should a person have?

Braun and Comino: Generally a minimum of 20%, however, some lenders have very good offerings for your primary residence, i.e. 10% down.

Leasca: But a lot more goes into home buying than a downpayment right? How much should people set aside for closing costs?

Braun and Comino: Around 1% of the purchase price. If it’s not a cash offer, additional payments will be due to the lender upon closing of a mortgage loan. Your lender is required to provide a breakdown of these closing costs in what’s called a GFE, or Good Faith Estimate. This is also a good way to help borrowers shop and compare costs of loans with other lenders.

Leasca: What about mortgages? How should people shop around to get the best price?

Braun and Comino: Do your research, or use a realtor who’s done the research for you. Loan contingencies are one of the biggest reasons properties fall over in escrow so having a reliable and reputable lender is crucial. Many agents can recommend two or more brokers that they know are experienced in successfully closing loans. And if your mortgage broker feels accountable to both you and your agent, that’s only more incentive for them to cross their t’s and dot their i’s.

Leasca: What are the things most first-time buyers miss when looking into buying a new home?

Braun and Comino: Make sure you do the drive from your dream home to your work. One of the biggest reasons people become unhappy about where they live is when they’re spending a lot more time commuting than they’re used to. Figure out the route you would take and how bad traffic will really be. It may not seem like a big deal at the time, but try and think about your future self.

Also, and we’ve seen this happen before, don’t make any big purchases while you’re in the market to buy a home. Lenders will be looking at your debt-to-income-ratio and if you have just gotten a loan for a new car, your mortgage rate might be affected. Another random note, homeowners can write off their mortgage interest on their taxes so if they’re weighing whether to rent or buy this is a good thing to remember.

Read full article here.