Buying a home is one of the biggest milestones – and purchases – we can reach in our adult lives. It means that you’ve finally saved enough, are in control of your finances, and are ready to ‘put down roots’ – even if they’re not for forever.
Looking back a few years ago, immediately following the Great Recession in the late 2000s, owning a home seemed out of reach for many and homeownership dropped significantly. Now a decade later, being a homeowner is popular again – almost as popular as it was before the market dropped.
So why is the market doing so well? There are a few big factors that go into making a friendly home-buying environment. Here’s why it’s a good time to buy a home now:
It’s a less restrictive lending environment
In May 2018, Congress passed a bill that repealed some of the rules set in the post-recession Dodd-Frank Act. The new legislation allows community banks and other lenders to ease their lending requirements, so they can offer mortgages to people in a broader economic range. The more lenders there are, the easier it is for people to find a loan.
Data compiled from the federal government and analyzed by Zillow in 2016 shows that mortgage rejection rates are roughly half what they were a decade ago. That means people who apply for mortgages are qualifying for them most of the time.
Rates are more affordable
Though the Fed recently increased interest rates, rates are still low enough for most prospective homebuyers. A recent average 30-year interest rate is 4.70%, which is only about 1% higher than one of the lowest rates seen when interest rates were down during the Great Recession.
Financial markets are strong overall
Confidence begets confidence, as they say. When unemployment is low, consumer spending is strong and the stock market is performing well. All of that casts a positive light on other areas for investment, such as real estate and other personal loans.
Lending practices are friendly but prudent
While the mortgage lending landscape has opened up to more consumers over the last few years, there are some hard-earned lessons from the recession that have strengthened the process to better protect both the homebuyer and the lender.
For example, lenders are keeping a close eye on would-be homebuyers’ debt-to-income (DTI) ratio. This looks at how much debt (student loans, credit card debt, etc.) the buyer would carry with the addition of a mortgage in comparison to their income, and it helps to determine if adding home loan debt to the mix is doable for that buyer. If it’s greater than 43%, including a potential mortgage payment, most lenders will shy away from providing a mortgage to avoid putting that buyer under water and potentially in a position where they would end up defaulting on their loan.
In general, though, a strong economy with relatively low interest rates makes for a very encouraging home-buying environment, giving more people an opportunity to secure the home of their dreams.
A good home loan expert can help the consumer navigate the lending process and determine what kind of loan they can comfortably afford, especially as housing inventory ebbs and flows, impacting housing prices.
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