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Lower home prices vs. higher interest rates: Is it time to buy?
Home prices are stable and often receding as realtors wait for homebuyers. KTVU's Tom Vacar explains how in some cases, paying higher interest rates in the short term might be a wise strategy.
OAKLAND, Calif. - Is now a good time to buy a home? The buyer's advantage is that there are far fewer buyers to compete causing prices to soar. What you save in purchase price can go against higher rates.
With home prices stable or often receding, buyers are not lining up to compete for them. Here's why, paying higher interest rates, in the short term, might be a wise strategy.
Let's assume an $800,000 home with 20% down. A 30-year fixed mortgage interest rate now is about 7.1%, locking you into a $4,300 monthly payment. A 15-year fixed rate, half as long, at about 6%, is a $5,400, if you could afford it.
Fif Ghobadian is Senior VP at Origin Point Lending. "You saved because you're not competing and you can refinance within a year or two," she said.
Another increasingly popular option is called the ARM, the adjustable rate mortgage. Experts say the best one is a 7/1 adjustable where, that means you get a fixed rate for seven years and after that, the rates can go up. But, by then, you should be able to refinance. "The difference in interest rates between an adjustable and a 30-year fixed is about fixed is about a half a percent in most cases," said Ghobadian.
The best terms and rates go to folks with a 720 or higher credit score. "Even for a jumbo loan, which is a loan over $970,800 you can put down as little as 10%," said Ghobadian.
Below the jumbo loan amount, a 5% down payment is very possible. "If you put less than 20% down, your interest rate is about .5% to .75% higher.
At 10% down, many lenders allow you to borrow 80% of the purchase price on one loan and another loan for the remaining 10%. You avoid mortgage insurance and the payment on the second loan is interest only," said the lending expert.
SEE ALSO: Bay Area home prices continue decline
Finally, nowadays, many lenders have the new Buydown Program. "Where the seller or the lender, but the seller can do this, puts money into ESCROW for the buyer and for the first year, the interest rate gets reduced by 2%. The second year it gets reduced by 1%. The buyer has the advantage at the moment and the competition has really come down," said Ghobadian.
If, as experts expect, mortgage rates come down in the next few years, you can refinance everything at lower rates.