Recently, the REALTOR University Research Center sponsored a study that concluded now is the time to become a homeowner. Researchers from different universities conducted the study.
The study looked at what they call the indifferent renter –someone who in principle has no preference to own or rent for any reason other than to build wealth. Put simply, the study addressed the question -can you make more money investing in a house or by renting and investing leftover savings elsewhere?
To determine the answer, the researchers compared average historical appreciation rates to what they call the hurdle rate. The hurdle rate is the current rate of real estate appreciation necessary to generate the same amount of wealth over an eight-year period that the alternative of renting and investing elsewhere would accomplish. When the hurdle rate is below past levels of home appreciation, the scales tip to buying because it means that the current home market is at a low point, indicating high potential for future property appreciation. On the other hand, if the hurdle rate is above past levels of appreciation, the potential for high levels of future appreciation is lower and renting may be the better option.
The study conducted a few weeks ago concluded that the hurdle rate is indeed below the average past appreciation of most markets. Therefore, now is the time to buy. However, sometimes buying a home for the first time is easier said than done.
Finding the Best Mortgage
One thing that has frequently come up in my recent travails is that for tenants looking to convert to homeowners, obtaining a mortgage has become a challenge. Apparently, Money magazine recognizes this as well. This week, it featured an article that provides some tips on how to obtain a mortgage and get a good rate:
- If you have a high credit score, try to keep it that way for at least three months before applying for a mortgage. Keep your credit card balances low and do not apply for any new cards during that three-month window.
- Most loan contracts give ten days to find a loan. Try to negotiate a larger window, say fifteen to twenty days; to give you time to shop around.
- Before agreeing on a loan, ask your lender how long it typically takes to close a loan like yours. If it seems like it will take longer than your rate lock-in period, negotiate a longer lock-in period. If the lender wants you to buy a longer lock-in period, refuse and take your business elsewhere.
- Get at least six quotes and always ask for estimated fees and closing costs. Some lenders will provide that information.
- If you know that you will not own the house for more than seven years, consider an adjustable rate mortgage (ARM). You may save a lot this way.
- Consider using a mortgage broker. They have access to and experience with a large number of lenders.
You’ve got to be in it…….
Although obtaining a mortgage these days is not as easy as it used to be, now is the time to give home ownership a shot to get on the path of wealth building.