I'm excited about 2012 for many different reasons. I have a great career that I am loving. I have met so many wonderful people in the last few weeks, including someone that traveled to Myrtle Beach from my home county, Rockland, to look at real estate in the Grand Strand area.
I'm especially excited to share with prospective buyers that now is such a great time to buy a home (either for a primary residence, investment property or a 2nd home). Everyone I say that to already knows that, but it's nice to point out one of the biggest reasons why.
Interest Rates! Interest rates are at such a low point right now (I can't imagine them going any lower) that using leverage from a bank or other lender becomes incredibly powerful. Let's say I borrow $100,000 from a bank at 4% interest for a fixed rate for 30 years. My monthly payment would be $477.42 (plus tax & insurance). 5-10 years from now, let's say the interest rate for the same loan is 8% due to inflation. The monthly payment is $733.76 (again plus taxes and insurance). First, notice the $256.34 difference in the monthly payment alone. That's reason enough to get in the housing market now. But also consider that the interest rate went from 4% to 8% making your purchasing power greater today than it will be after rates increase. With inflation, lenders who are paid a fixed rate of interest on loans will lose purchasing power from their interest earnings, while their borrowers benefit. You are still paying $477.42 for your loan. It hasn't gone up even though everything else most likely has, including the value of the home you purchased. That is the power of using leverage to buy now at these low interest rates.
So if that makes sense to you, and you want to get in the market, what should you do first? Well, in my opinion, make sure you can get that 4% loan or similar. Get pre-qualified before you go out looking for properties. Work with a loan specialist to get an idea on how much home you may be able to purchase. The pre-qualification letter is free and lets you know how much you can borrow. It only requires some basic personal information.
You may also want to get a pre-approval letter which would show sellers that you are serious about buying a home. A pre-approval letter is more powerful than a pre-qualification letter because it involves a more detailed look into your financial background. It tells sellers that you have your financing all lined up, and will speed the process up in the house buying.
At the very least, have the pre-qualification letter ready to go when you meet with your real estate agent.
If you have any questions on this topic or anything else, just let me know.
