As I toasted the New Year, the numbers 1-1-11 seemed particularly symbolic of a clean slate, starting with the number ONE. To me, this represents new beginnings, the first time, and finishing the race at number one.
The last decade was one of the toughest in American history. We unfortunately witnessed 9/11, two wars, an American Banking Crisis that spread globally and a Housing Market Correction unlike any other.
So it’s 2011 – Now what do we do?
Move forward with confidence that things will get better. Here are five tips to begin the decade so that you may finish on top with your personal finances as they relate to real estate and mortgages.
Tip #1 Refinance your current mortgage(s) while you can to shorter maturities of ten, fifteen or twenty years and save tens to hundreds of thousands of dollars right now.
Even if you refinanced in the last two years, check with your mortgage advisor once again to see how much more money you can save at the current 40-year low in rates by paying off your home faster. Americans are moving at a fast pace to own their homes free and clear. Imagine being mortgage-free so you can retire with no mortgage payments! Do this ASAP because the economy is showing signs of recovery. Holiday sales went through the roof and housing is starting to show signs of improvement over
last year. Take advantage of dips in the market because this will not last long and it may be your last chance for many years to brag about grabbing the lowest rates ever for 15 and 20 year mortgages.
Tip #2 Buy a House. Statistics show that Now is the Time to Buy a House.
The NATIONAL ASSOCIATION OF REALTORS® (NAR) Housing Affordability Index has risen to new heights in recent months. In fact, the Index shows that houses are more affordable now than in the 1970s.
In October, the most recent month for which we have data, the composite Housing Affordability Index (HAI) rose to 184.2.*
History says when the HAI is above 130 it’s time to BUY.
How does the Index work?
The HAI is a measure of the degree to which a typical family can afford the monthly mortgage payments on a typical home.** The higher the Index, the more affordable the housing.
A value of 100 means that a typical family can afford a typical home, assuming a 20% down payment. A value of 150 means that same family has 150% of the income needed to buy that same home. At current levels, families are more able to afford to buy a home than at any time in recent history. The caveat, of course, is that the buyers must be able to qualify for a loan.
Forecasts say rates will rise in 2011. If you are thinking about buying a home, Now is the Time, while the Index shows housing to be the most affordable since the 70’s!
*Information courtesy Mortgage Coach. Housing Affordability Index ©2010 NATIONAL ASSOCIATION OF REALTORS®
**A typical home is defined as the national median-priced, existing single-family home as calculated by NAR . The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. The prevailing mortgage interest rate is the effective rate on loans closed on existing homes from the Federal Housing Finance Board and HSH Associates, Butler, N.J.
Tip #3 Don’t chase rising interest rates. Refi or purchase now.
A modest ¼ point rise in interest rates can cost you an added $22,000 in interest over the life of a $100,000 30 Year Fixed Rate loan. Imagine – a ¼ point on a $400,000 loan would add $88,000. History shows that when housing sales increase, so do rates. If you’re sitting on the fence, hoping rates will fall even more, get off the fence now. Refi or purchase so you don’t pay additional interest over 20-30 years.
Tip #4 Listen to your REALTOR®. Sell your House and Buy Another. Do it Now!
I hear countless tales of sellers refusing to come down on their price to sell their homes. I can’t sell my house at this price! I’ll take a bath! Follow a U curve with me if you will. Yes, unfortunately we have seen home prices drop to the bottom of that curve. But remember, if you sell at the bottom of the U, act concurrently by BUYING your next home at the bottom of the U. You will step off and back on the curve in the same place, but you will be in a different home, one that meets your needs now. Or maybe you found a great short-sale, foreclosure or dream-house opportunity to make a residential property investment. Remember the rates and costs in a rising rate environment. Sell and Buy now.
Tip #5 First Time Home Buyers: Don’t hold out for a better deal. Now is the Time to Buy!
Tips 1, 2, 3 and 4 above apply to you, too, even if you don’t own a home right now. The Housing Affordability Index is at a record high. Jump off the fence, get out of that rental, and talk with a mortgage advisor on how to get PreQualified to buy a home, even if you don’t have a big down payment. Opportunities in lending and real estate are waiting for you to buy your dream house at record low prices and record low rates.
America is a resilient country. Let’s learn from our mistakes and work smarter to recover our losses by entering the markets at these incredible lows. Seize this opportunity so at the end of the decade you can finish on top with your finances, with homes paid or soon to be paid off, homes that will have appreciated in value once again. As the saying goes, Buy Low, Sell High. This is certainly the time to take advantage of low housing prices and low mortgage rates. Today is the day to start brand new at 1-1-11!