Buying Your First Home in 2019?
Buying your first home is a little scary, mixed with a whole lot of exciting! 2019 looks like it’s shaping up to be the year of the homebuyer, and here’s why.
- Buying Your First Home
- 2019 Interest Rates
- 2019 Home Prices
- Buyers Market Advantage
- How Much Down Payment?
- Creative Ways to Pay Costs
- Working with a Professional
Buying Your First Home
Being a California mortgage broker for almost 20 years now, I get the question all the time “when is the best time to consider buying a home”.
My answer is always the same. The best time for buying your first home is as soon as you are in a position to do so.
Now obviously, there are always exceptions, but if you have steady employment, and your family knows what area they want to live in, you should consider owning a home, and not renting, as soon as you possibly can.
There are of course tax benefits, which many real estate and mortgage professionals like to talk about, but I like to frame homeownership around 3 simple benefits.
- Fix Your Housing Costs – Rents can vary wildly and without notice
- Long Term Wealth – If you rent for 30 years, you have a place to live. If you pay off your mortgage over 30 years, you have a nest egg!
- Equity Growth* – Equity is not a guarantee even though home values typically double every 10 years. Your $300,000 investment today could be worth $600,000 in 10 years!
*Equity growth is never a guarantee. Equity is 100% upside. Even if your home’s value never increases, just paying off your home over time will leave you with a retirement fund of the current value of that home.
2019 Interest Rates
Interest rates, the cost of money, is a big factor when buying your first home. Interest rates rose again in 2018, continuing the slow return to normalcy that we’ve been experiencing throughout the year.
According to the Freddie Mac Primary Mortgage Market Survey (PMMS), which is a weekly survey of banks and lenders nationwide, 2017 ended the year with Conventional interest rates on a 30 year fixed rate mortgage at around 3.99%
During the 2018 year, interest rates were incredibly volatile. Over the course of the year, rates have crept up over .55%, ending the year with an average 30 year fixed interest rate of 4.55%.
As recently as November 2018, interest rates were .25% higher than where they ended the year. It’s been an interesting year with a lot of movement in interest rates.
In a recent MarketWatch article, major lending institutions were asked for their 2019 interest rate forecast.
Across 7 major lenders and industry associations, the consensus seems to be that rate are going to continue to creep upward in 2019.
Excerpt from MarketWatch Article:
All of this to simply say that interest rates are, for the most part, most likely going to stay very similar to where they are now if you’re buying your first home in 2019.
I expect some ups and downs, and I agree that at the end of the day, we will continue our slow upward climb as rates continue to normalize.
2019 Home Prices
The cost of homes in your area are probably the biggest factor that goes into buying your first home. Home prices in 2019 are going to slow down a bit from the equity growth we’ve seen over the last few years.
Our recent home value appreciation is unsustainable in the long run, especially as the market begins to normalize and the Government backs out of the interest rate game.
According to Zillow’s Home Value Index, in 2018, home prices appreciated 7.7%. They are also predicting that appreciation in 2019 will drop to 6.4%.
Normal annual appreciation is between 4% -6% a year, so these numbers also fall into a more “normalized” state. Keep in mind that this Zillow chart is showing National averages, and that Real Estate is very localized.
When you compare projected home value appreciation Nationwide to California, you can see in the above chart that California is set to out pace the National Average, which is pretty normal.
If you look at home prices over time, you’ll see that it is not a slow and gradual slope in one direction or another.
The chart below is a snapshot of Median Home Prices in California in the past 3 years (2015 – 2018).
On August 23rd, interest rates began a steep climb of over .50% over a 90 period peaking in the first few days of November. This chart clearly shows that as interest rates rose, home prices declined.
Let’s put this into perspective. It’s been a “Seller’s Market” for about the last 3-5 years in a pretty big way. This means that there are fewer homes for sale than there are buyers for those homes.
The result is that you have multiple offers on every home, which drives competition, and home prices higher. Buyers can get incredibly frustrated in a seller’s market.
In 2019, I expect that we are going to see a slow shift toward a buyer’s market in many areas of the Country. At BuyWise Mortgage in California, we are already seeing buyers having the upper hand in purchase transactions.
Buyers Market Advantage
A buyers market implies that the buyer has an advantage when negotiating the purchase price for a new home. Whether a market benefits the buyer or seller can vary widely depending on where you’re buying.
There’s an old saying that “real estate is local”. While we have Statewide, and Nationwide medians, averages and trends, a specific neighborhood or community is going to behave according to the supply, demand and the economic stability of that community.
Keeping this in mind, across the board we are seeing home prices start to stabilize. While home values will continue to rise, they will not rise as quickly as they have over the past several years.
As a result, if you’re out shopping for homes, you’re going to see a lot of price reductions, and homes staying on the market longer with no offers. Below is a snapshot of my local community, Irvine, California.
A price reduction doesn’t necessarily mean that home values are dropping, it mostly means that sellers are asking too much out of the gates and need to be more competitive if they want to attract buyers making full price offers.
Understanding the local market you’re buying in can give you a distinct competitive advantage over your competition.
Having an experienced real estate agent on your team will also give you a significant competitive advantage.
Regardless of whether it’s a buyers or sellers market, with a little bit of extra planning and homework, you can increase your competitive advantage.
Additional Reading: How Home Buyers Win in a Competitive Real Estate Market
Other advantages of a buyers “leaning” market is that sellers are more likely to contribute a credit to permanently buy-down your interest rate, or pay closing costs on the purchase.
How Much Down Payment
It never ceases to amaze me the number of people that believe that the only way you can buy a home is with a 20% down payment. That could not be further from the truth.
The down payment requirement is determined by the type of home loan you are applying for.
Following are the most common types of home loans for purchasing a new home, and the minimum down payment required for each one.
- Conventional Fannie Mae HomeReady* – 3% minimum down payment required
- Conventional Freddie Mac Home Possible – 3% minimum down payment required
- FHA Government Insured – 3.5% minimum down payment required
- VA Guaranteed Veteran Home Loan – 0% minimum down payment required
- USDA Guaranteed Home Loan – 0% minimum down payment required
- Jumbo Home Loan – 10% minimum down payment in most cases
- Portfolio Home Loan – 15% to 20% minimum down payment
The larger down payment you can make, the better it will be for you in all cases. Here are a couple of examples.
Using a FHA loan, your mortgage insurance payment, and therefore your mortgage payment is lower if you put 5% down as opposed to 3.5% down payment.
Using a Conventional loan, your mortgage insurance payment will be less, the closer you get to 20% down payment.
Many first time home buyers, when they first contact me, already have an idea of what kind of loan they would like to use to buy the home.
In almost all cases, your loan will choose you, you don’t necessarily get to choose your loan. Depending on your down payment, credit score and debt to income ratio, a FHA loan is often the best option when buying your first home.
Creative Ways to Pay Costs
The cost to buy a home in 2019 includes both your down payment and closing costs. There are different rules for how your down payment gets paid as opposed to how your closing costs get paid.
Your down payment may come from any of these sources:
- Your own personal sourced and seasoned funds
- A gift from a relative
- Proceeds from the sale of personal property
- An award from an insurance claim or court case
- Tax refund
- Employer assistance program
- Buyer assistance program (State/City/County)
If you’re in a situation where your downpayment funds are required to be sourced and seasoned, this simply means that you need to show that the money has been in your possession (evidenced by bank statements) for the past 60 days.
Your closing costs when buying your first home may come from any of the above mentioned sources as your down payment. You also have the added flexibility of being able to get your closing costs paid by any of these methods:
- Real Estate Agent Credit
- Credit from Seller
- Credit from Lender
Your agent, the seller, or your lender cannot help you come up with your down payment requirement, but closing costs are definitely still on the table.
Working with Professionals
I can not emphasize enough the importance of hiring a professional, experienced Realtor and loan officer when selling or buying your first home.
When you call a lender from a TV or radio commercial, or click an ad you saw on the internet that has a catchy headline, you are playing competence roulette.
I personally have been in the business for almost 20 years now, and started this website 10 years ago to educate and empower consumers.
We have had over a million consumers visit this website and I have answered many thousands of questions from folks all over the Country.
If you are trying to buy or refinance your home in California, I can help. You may ask questions about your options below, or shoot me an email directly to email@example.com.
If you are outside of California, I can introduce you to a loan officer from our Expert Network that I personally know and trust.