In this episode, I discussed the 6 factors that may make buying a home more expensive in the upcoming months.
Hello everybody and welcome to the Reside Daily Bite; I’m your host, David Doucette and today’s episode is going to be part 2 of “The Cost of Waiting” and why I’m doing this again is because last Friday, we had my mortgage broker, Dean Piller, in here and we briefly talked about the cost of waiting. Then, we recorded our show, the Reside Realtor Online Radio Show, and really got a lot out of that in terms of the costs of waiting and picked up key points or key factors to look for on the coming months. So, I wanted to incorporate those in today’s show because they are so important. That is episode no.006 of the Reside Realtor Online Radio Show. If you haven’t listened to it yet, I encouraged you to do that and you can find that at ResideRealEstate.com/podcast.
But the 6 factors are:
1. The federal tax credit, which is set to expire on April 30. We don’t know if that’s going to be extended; and that’s an $8,000 credit for first-time home buyers and $6,500 for non-first-time home buyers.
2. The FHA is talking about raising the requirements for the downpayment. Now it’s currently 3.5%, meaning you have to have 3.5% down of the purchase price. They’re talking about raising those requirements to 5%, which would mean you have to come up with a little more money to get into the game, so to speak.
3 & 4 have to do with private mortgage insurance and if you’re financing more than 80% of the purchase price of your home, you’re going to have to pay private mortgage insurance. So both the upfront cost will be going up and also the monthly costs. For example, on a $500,000 mortgage, your private mortgage insurance might be around $250; when it goes up, it’s going to go up to probably about $400 or thereabouts. So it’s going to go up around $150 every month.
5. The interest rates -they’ve obviously been at historic lows for quite a while now. They’re hovering around 5%. Some industry experts are predicting that they could go up to as much as 5.75% – 6% by the end of the year. Now this is the most significant factor in my mind because what that means…on a $500,000 mortgage, if interest rates go up 1% that’s going to add about $400-500 on your monthly payment every month. So it’s about $6,000 or so a year. That is, I think, the most important element in all of these -the interest rates.
Finally, the 6th item is the values of homes. I believe they’re going to start going up. We know they’re going up here on the Westside of Los Angeles and the county. Other parts of the country are going to be a little slower before they start going up. Some experts are predicting the bottom is going to hit the first quarter of 2011 but I can tell you based on what we’re seeing here in Los Angeles, we’ve already hit the bottom and things are starting to go up. Agents in our office are already seeing multiple offers.
So, those are 6 key factors. Again, (1) tax credit; (2) the FHA possibly raising the downpayment requirements; (3) upfront mortgage insurances are going to go up a little bit; (4) the monthly insurance mortgage is going to go up a little bit; (5) the interest rates -very important; and (6) values. Six items to look at and this cost of waiting exercise.
My name is David Doucette, thanks for watching the Reside Daily Bite.