Expert Take speech bubble over an image of a couple in front of their new home

As mortgage interest rates sit at record lows, home buyers are flooding the housing market. But is now really the best time to buy, especially for first-time homebuyers? The answer isn’t a simple yes or no.

Yes, low rates are attractive and can make a big impact on the total cost of a mortgage, but the simultaneous high home demand is causing prices to increase. For homebuyers, this phenomenon can make it an uncertain time to shop, but staying positive and focused will help. When it comes to today’s market, it’s up to the home shoppers themselves to make the most of current rates and their mortgages — and the key is research, discipline, and patience.

Record Low Rates, Sky High Prices

Declining mortgage interest rates has resulted in an influx of buyers in the market (some even buying homes virtually). But the inventory of homes isn’t keeping up with the demand. This has created a seller’s market for the time being, which can sometimes enable individuals to drive up the price of their homes. As a result, houses in some regions are selling for 5 to 10% more than they typically would. In certain competitive pockets of the market, such as Cincinnati, Denver, and Boston, prices are increasing even further.

As you search for a home in this environment, it’s important for buyers to put time and effort into understanding a home’s market value, which requires using the tools available to do some homework. You can use sites like Zillow and Realtor.com to research average and median prices in your zip code or to see what the usual cost-per-square foot is in your neighborhood. If you’re working with a realtor, engage them and the insights they glean through their professional resources. By looking at recent sales and comparing prices of similar homes, you can make more educated bids and reduce your risk of overpaying for a home.

The big picture matters.

Lower interest rates can make a significant difference. Reduce your rate by a fraction of a point and you can save thousands of dollars over the life of your loan. For example, saving $20 a month in interest charges adds up $240 a year and more than $7,000 over the course of a 30-year mortgage. However, interest rates are just one piece of homebuying and ownership you need to consider.

Before you’re swayed by low rates, you have to realistically think about your buying potential and your financial stability. Do you feel confident about your income for the next year or two? Or are you feeling you should purchase a house simply because rates are at historic lows? As the coronavirus has upended the job market in several industries and shifted financial priorities for some, it’s critical to be thoughtful about your ability to make your monthly mortgage payments now and later.

As a first-time homebuyer, you also want to consider the total cost of homeownership. The price of a house isn’t limited to your mortgage. You’ll pay closing costs and associated fees, as well as take on all the maintenance costs, property taxes, etc. as a homeowner. By being prepared and thinking through what comes after the initial purchase, you’ll be a more confident shopper.

Shopping Smart in a Seller’s Market

If you decide to move forward in this market to take advantage of low rates, don’t discount the impact of doing your due diligence. That begins with researching homes to ensure you don’t wildly overpay and extends to your lender search.

All lenders differ in terms of rates, ancillary fees, processing times, documentation required, and, most importantly, how they do business. Some lenders prefer traditional, in-person business and others, like Ally Home, perform the mortgage process digitally. Before you apply for a loan, take time to interview three or four lenders to find one that is the best fit for you.

Finally, be patient, disciplined, and try to not get discouraged during the homebuying process. Competition is high in the market, so you may need to place offers on multiple homes to get a deal. By obtaining mortgage pre-approval from a lender, you can make yourself a more attractive and competitive buyer and potentially move faster through the process. And by staying persistent in your search — and remaining disciplined to stay within your budget — you can find a home you want at a price that makes sense for you.

To Buy or Not to Buy

With today’s historically low interest rates, it could be a great time to buy. Although, this is only with the recognition that inventory is relatively thin and home prices are up, meaning it’s up to you as a buyer to do your research to ensure those low rates aren’t offset by increased price appreciation. Whether you’re a first-time homebuyer or not, by using the wealth of tools available to you online, utilizing your realtor’s knowledge (if you have one), and working with a lender that has your best interest in mind, you can flourish in our unique current market.

We’re here to support your homebuying journey.

Learn more.


 
Speech bubble icon next to text "Expert Take"

Headshot of Glenn BrunkerGlenn Brunker is the president of Ally Home, responsible for leading the growth of Ally’s mortgage business. He has oversight of both the direct originations and bulk acquisition businesses as well as the responsibility for the servicing platform. He also leads the secondary marketing and business line risk functions.

Glenn has extensive executive experience in leading banking operations, secondary marketing, production channels, and all key risk functions. Before joining Ally in 2018, he held several leadership roles in financial services at Bank of Oklahoma Mortgage, Fifth Third Bank, National City Bank, and Oak Street Mortgage.

Glenn is a native of Chicago, Illinois with a bachelor’s degree from Northern Illinois University and an MBA from DePaul University. He has since left the Midwest and currently lives in Charlotte, North Carolina.