These days, Americans seem willing to take risky steps to buy a home. If you are considering taking a chance, one of the first questions you need to ask yourself is, "How much can I really perform? "
Mortgage rates are again above 4%, and after a December rate hike of 0.25%, the Federal Reserve is expected to raise the federal funds rate additionally. French bank BNP Paribas SA predicted in January that interest rates would rise again in the second half of 2017, followed by a quarterly increase in 2018. All this means that buying a home is not getting easier.
4 Risky moves to buy a house that happens today
What does this mean for buyers who are preparing to buy a house this year? According to the owners. com 2017 Home Buyer Study of more than 1, 000 consumers considering a home purchase in 2017, it appears as though many potential buyers are willing to take certain financial priorities to the backseat at home. (For more information, see Finding the Best Mortgage Rates in 2017. )
In terms of buyers sacrificing to land a home, the study shows two broad trends. Overall, buyers are cutting back on spending, but they're also reducing what they're saving for emergencies and retirement. For example:
- 76% of buyers said they skip investing in stocks as they prepare to buy.
- 72% do not participate in other investment funds.
- 61% have put their emergency fund on hold.
And in a move that is tangentially less risky, but not for long-term health:
- 84% have stopped gym memberships or fitness classes.
The reason? Nearly seven in 10 respondents said they were concerned about not having enough cash for a down payment. They were also concerned about rising interest rates, getting locked into a bidding war for a home and the long-term affordability of their mortgage.
Owner. Com president Steve Udelson, commented in a press release on what might be causing shoppers to reset their financial goals: "Market pressures are forcing consumers to take necessary actions to stretch their spending power. Buying a home is a worthwhile investment for many people, and consumers show a willingness to make sacrifices to achieve homeownership. "
What else they are giving up
Not all moves are risky. Eating out (87%) and shopping for clothes (86%) are also among the top expenses consumers are spending on. And then they give some "dream home" -Ideas on.
In addition to reducing savings and spending, buyers also expressed a willingness to purchase a home that did not meet all criteria if it allowed them to stay within their budget.Fifty-one percent of respondents said they would want to buy a fixer-upper, while 36% said they would not approve of buying a smaller home. Surprisingly, 28% said they would be willing to do some of the work themselves to avoid paying high fees or commissions to a real estate agent. (For more information, see Do you need a real estate agent?? )
Is it worth it?
Real home prices rose 2% year over year, according to First American's Real House Price Index. Coupled with the prospect of rising interest rates and President Trump's recent decision to cancel a mortgage cut that would have spared first-time homebuyers seeking FHA loans an estimated $500, it's easy to understand why buyers might feel pressure to market now.
But is it worth it? Luis Rosa, a certified financial planner and financial advisor with Haydel Biel& Associates in Pasadena, California, says that the type of behavior exhibited in the owners is. com study is typical of first-time home buyers: "Since the future of interest rates and housing prices is unknown but likely to rise, it's not necessarily a bad idea to temporarily give up certain future goals to buy a home if you can afford it too. "As long as buyers don't lose sight of these other priorities, they can make it work.
Nicole Peterkin, a financial advisor with Peterkin Financial in Quincy, Massachusetts, warns buyers to be aware of the risks: "Feeling that the money saved for a down payment is not enough is usually an incentive to cut costs. And save more if the house is that important, but then you have homebuyers putting every penny saved into a house. "
This creates captured equity, and there are costs and lack of liquidity associated with accessing this money. Peterkin says homeowners may be trying to catch up when it comes to building their safety net or investing for retirement. In this scenario, she recommends that buyers consider purchasing a home that is less financial so they can still save and invest while homeownership becomes a reality.
The Bottom Line
Despite rising interest rates, the housing market remains strong, but buyers should be aware of how this could affect their ability to take out a mortgage. The Owner. com study suggests consumers are taking the goal of buying a home seriously for now, even if it comes at the expense of their savings.
If you are considering buying a home this year, you just need to focus on your financial situation before making your move. It is also beneficial to research interest rates comprehensively with a mortgage calculator so you can estimate the total cost of your new home if you are not buying with cash.
Apart from today's interest rates, remember that a delay in retirement costs longer. : you need to save much more to get the same result. Working out your various decisions mathematically will ensure that you strike the right balance between your short-term and future goals.