Now is a good time to buy a house





FHA to lower cost of mortgage insurance

To make owning a home more affordable, the Federal Housing Administration (FHA) will dramatically cut the costs associated with mortgages it backs. The premium for FHA mortgage insurance, which is designed to protect the agency in case a borrower defaults on a loan, will be cut from 1.35 percent of a loan value to about 0.85 percent, the White House said in a recent statement.

What does this mean? 

A typical first-time homebuyer will save $900 a year on their mortgage payments. Existing homeowners who refinance into an FHA loan will see similar savings.

“This will make homes affordable for over two million Americans in the next three years,” said Julian Castro, U.S. Department of Housing and Urban Development secretary. “Since 2009, the Obama administration has taken bold steps to reduce risk in the mortgage market and protect consumers. These efforts have made it possible to take this prudent measure while also ensuring FHA remains on a positive financial trajectory. By bringing our premiums down, we’re helping folks lift themselves up so they can open new doors of opportunity and strengthen their financial duties

“The administration will not tolerate a return to shoddy underwriting or unsustainable mortgage lending, but believes there are too many middle-class families with good credit by historical standards who remain shut out in today’s tight market and deserve a chance to buy their home,” the White House said in the statement.

The economic benefits could extend to others industries, said former FHA Commissioner David H. Stevens, who is now chief executive of the Mortgage Bankers Assn. in Washington. “It creates a lot of new jobs in moving, decorating, appliance, installation, and more,” he said. “It isn’t the magic pill that’s going to get the economy racing faster, but it is without question a very simulative outcome.”

When you a buy home, it’s a known fact that you help create several jobs.

FHA backs home loans and charges borrowers a fee to cover the cost of insuring lenders against default. The program is popular among cash-strapped buyers, who can put down as little as 3.5 percent of the house price. But higher mortgage insurance rates have made the loan less attractive.

This couldn’t have come at a better time, especially right before the spring housing market. Believe it or not, the spring market starts in February.

Buyers are wondering if this a good time to buy. Although this is a great incentive, you should still take note of all the other factors that play a very important role. Here are three reasons why it is a good time to buy:

Home prices are (still) affordable    

While homes prices nationally continue to rise, homes are still affordable and buying is more affordable than ever before.

Mortgage rates are (still) low

During the recession, the rate on a 30-year fixed loan averaged 4.32 percent. Now rates are close to that, and there’s no recession! That means they’ve got nowhere to go but up.

Granted, rates aren’t expected to skyrocket overnight, but don’t think that a small uptick wouldn’t affect your budget. In fact, if rates were to go up by just one percentage point, your purchasing power would be reduced by a whopping 11 percent. To put this in further perspective, if you could afford a $400,000 loan at four percent mortgage rates, you could afford a loan of just $356,000 at five percent, and an even smaller rise in rates — say 4.5 percent — would add $75 to the monthly payment on a $300,000 house with $50,000 down.

Buying is (still) cheaper than renting

No doubt buying is a significant purchase, but in most of the county it’s (still) cheaper than renting. Minnesota was rated in the top 10 among states for having the highest priced rental market. So if you can afford to buy now, now is the time, as rents aren’t getting any cheaper.

Shawna Frazier, a realtor for Re/Max Results, has had a successful full-time real estate business for the past 12 years. Her goal in the coming weeks is to share information of value to MSR readers that will include tips on selling, buying, investing, and restoring your credit. She welcomes reader responses to Shawna.fra