Category: Buying a Home

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You Can’t Control What’s Happening with Mortgage Rates. But You Can Control This…

You Can’t Control What’s Happening with Mortgage Rates. But You Can Control This...

Mortgage rates have been volatile lately. And if you’re thinking about buying a home, that can make it harder to plan. But there are still things you can do to get the best rate possible in today’s market. It starts with having the right information.

So, what’s causing the bumps in rates? And what can you do about it? Let’s break it down.

Mortgage Rate Volatility Is Normal

Data from Freddie Mac shows the recent volatility. After trending down for well over a year, there was a rise this month (see graph below):

a graph showing a line of a moving rate

While it’s easy to be distracted by the changes, here’s what you need to remember.

It’s normal for rates to bounce around a bit here and there. For example, if you look back at the graph, you’ll see that even within the past year there have been times like this when rates inched up. We’re in one of those moments right now and you need to be aware of that.

Especially when there’s economic uncertainty or big global events happening, volatility like this is expected. As Investopedia explains:

“Mortgage rates don’t move in isolation. When global events inject uncertainty into financial markets . . . that can ripple through to borrowing . . . mortgage costs can respond quickly to geopolitical developments. As long as uncertainty remains elevated, rate swings may continue.”

And that’s one of the reasons why trying to time the market isn’t a wise move.

You can’t control what happens with mortgage rates. But there are still things you can do to help you get the best rate possible in today’s market. And here’s where to focus your effort.

Your Credit Score

Your credit score plays a big role in the rate you qualify for. Even a small improvement can make a noticeable difference in your monthly payment. As Bankrate puts it:

“Your credit score is one of the most important factors lenders consider when you apply for a mortgage. Not just to qualify for the loan itself, but for the conditions: Typically, the higher your score, the lower the interest rates and better terms you’ll qualify for.”

So, make sure you do what you can to keep your credit score up. If you’re not sure what your score is or how you can improve it, talk to a trusted loan officer.

Your Loan Type

There are also different types of home loans – and each one can have unique requirements, benefits, and rates for qualified buyers. The Consumer Financial Protection Bureau (CFPB) explains:

“There are several broad categories of mortgage loans, such as conventional, FHA, USDA, and VA loans. Lenders decide which products to offer, and loan types have different eligibility requirements. Rates can be significantly different depending on what loan type you choose.”

That’s why it’s so important to explore your options with a lender. You may even want to talk to multiple lenders to see how the options vary.

Your Loan Term

The length of your loan matters too. Most lenders typically offer 15, 20, or 30-year loans. Freddie Mac offers this advice:

“When choosing the right home loan for you, it’s important to consider the loan term, which is the length of time it will take you to repay your loan before you fully own your home. Your loan term will affect your interest rate, monthly payment, and the total amount of interest you will pay over the life of the loan.”

Again, to figure out what makes the most sense for your budget and long-term goals, have a lender walk you through all your options.

Bottom Line

Thinking about buying right now? The best advice is to accept that you can’t control where rates are going to go from here.

What you can do is work with a trusted lender and take steps that’ll help you get the best rate possible.

So, if you want to move today call me, Clarence Oliveira at 209-988-5254, to make it happen. You just need to control the controllables and focus where it counts.

Source: keepingcurrentmatters.com ~ By: keepingcurrentmatters.com ~ Image: keepingcurrentmatters.com

 

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Is It Finally a Buyer’s Market? Here’s How To Tell and What To Do About It

Is It Finally a Buyer’s Market? Here’s How To Tell and What To Do About It

If you’re buying or selling a home right now, one question is likely on your mind: Who holds the power in today’s market?

After years of sellers calling the shots, the balance is edging back toward buyers.

Inventory has risen 10% year over year for the 27th straight month; though, on a monthly basis, active inventory fell 6.8% since December, according to the Realtor.com® January Monthly Housing Trends Report.

Buyer activity certainly increased in January, as pending home sales—listings under contract—grew by 1.2% year over year, but that number could continue to increase in February and March as mortgage rates finally hit a three-year low and actually fell below 6% on Feb. 26.

The signs are pointing to a more buyer-friendly market more than ever, which aligns with the Realtor.com forecast for 2026. Here’s how to read the signs and navigate this point of flux, whether you’re buying, selling, or just watching and waiting.

What does a buyer’s market mean?

In the simplest terms, a buyer’s market happens when the number of homes for sale exceeds the number of active buyers. This shift in supply and demand gives buyers more leverage as sellers compete to outshine one another.

That means more choices, more room to negotiate, and often, more time to decide for buyers.

This is a notable contrast from the seller-dominated market that’s defined much of the past decade. Since the aftermath of the 2008 financial crisis, new-home construction lagged far behind demand, and buyers competed fiercely over limited inventory.

But in today’s slowly shifting market, the balance of power is beginning to tilt, even if it hasn’t full

Indicators of a buyer’s market

How do you know when the housing market is tipping toward buyers? There are several key signals:

High inventory

“The best single indicator for this is months supply,” explains Danielle Hale, chief economist of Realtor.com. “Typically, months’ supply above six months is the hallmark of a buyer’s market.”

To her point, newly listed homes edged up 0.7% year over year and surged seasonally from December, while pending sales rose 1.2% year over year—their strongest annual gain since late 2024

Active listings are still 17.2% below pre-pandemic norms, though, the widest gap since spring 2025

“Homebuyers and sellers can also look for other clues that go hand in hand with a buyer-friendly shift,” says Hale.

Location offers a significant indication: Inventory grew year over year in 46 of the 50 largest metro markets. Only Jacksonville, FL, San Francisco, Chicago, and Grand Rapids, MI, saw a very slight decline in active listings. Seattle experienced the most notable surge (+32.4%), followed by Charlotte, NC (+28.6%), and Washington, DC (+26.8%).

All of this means buyers are finally seeing more options, but not everywhere—and not evenly.

Slower sales

Homes are taking longer to sell across nearly every region. In January, the typical listing spent 78 days on the market—five days longer than a year ago. It was the 22nd consecutive month of slower sales.

“In a buyer’s market, sellers can typically expect it to take longer to sell a home, and they may have to reduce their home price—either directly in the listing or by accepting a below-asking-price offer—to ultimately make a sale,” explains Hale.

This is advantageous for buyers, explains Hale.

“Buyers can expect that they will not only have more options to choose from, but also have more time to consider their choices,” she says.

But it comes with a major caveat, says Realtor.com senior economist Jake Krimmel.

“Delistings are growing faster than inventory overall, and in some markets, for every two or three fresh listings, one home is being pulled.

“It’s a way for sellers to reassert control in a market where their leverage is fading,” he adds.

Price drops

With listings lingering, price cuts have become a defining feature of the market. Price cuts slightly decreased year over year, with 14.3% of listings discounted, down from 15.6% in January 2025.

Discounts are most common for homes in the $350,000 to $500,000 range, where affordability pressures are sharpest and sellers are more motivated. At the luxury end—$1 million and up—price reductions remain relatively rare as high-end sellers hold out for the right offer.

Concessions

More motivated sellers can also show up in concessions. Mortgage broker Carlos Scarpero has seen a growing number of sellers offer financial perks to seal the deal.

“Even within cities and price points, trends can vary,” he explains. “I’ve closed several deals in 2025 with $10,000 or more in seller concessions. This is certainly higher than I have seen in years past.”

While these indicators vary by region and price tier, the pattern is becoming clear: Sellers are no longer in complete control, and buyers are starting to regain ground.

Is it a buyer’s market right now?

It depends on where you are.

When measured by months of supply, Miami, Austin, TX, and Orlando, FL, rank as the strongest buyer’s markets right now. Tampa, FL, New York City, Las Vegas, and Riverside, CA, follow, respectively.

While buyers may have more leverage in these cities, real estate experts warn that it won’t be felt evenly across all segments of the market. Miami is a strong example.

While demand for condos priced below $500,000 has plummeted, single-family homes remain near impossible to find. On the off chance one hits the market, you’re likely to get burned treating it like a condo.

In other words, “know your segment,” Ana Bozovic, a Miami-based real estate agent and founder of Analytics Miami, told Realtor.com earlier this month.

The same can be said of the national housing market, which is in perfect balance right now. That means more buyer-friendly conditions than there have been in years.

“We’re continuing to see the market shift in favor of buyers,” says Matt Ryan of Bozeman Real Estate Group. “In Bozeman, MT, inventory has finally returned to pre-COVID levels, giving buyers more choices and negotiating power. I expect this trend to continue.”

That buyer-friendliness is showing up at the local level, too.

“It’s definitely been tipping in the direction of buyers lately,” says Brooke Nelson, a ReeceNichols agent in Kansas City, MO. “Showings have really slowed down.”

And in some markets, the shift is already playing out in negotiations.

“Every buyer I’m working with that makes an offer is getting a contract accepted,” notes Mason Whitehead, a branch manager at Churchill Mortgage.

Local and regional variations matter most

While national headlines might suggest a buyer’s market is taking hold, the reality on the ground depends heavily on where and what you’re trying to buy. Local trends can diverge sharply from national averages, especially when you factor in price range, property type, and post-pandemic market dynamics.

In some high-demand pockets, homes are still moving quickly, especially if they’re priced right and well-prepared.

“Buyers have the most negotiating power in the condo market,” explains Aaron Buchbinder, a broker with Compass in South Florida. “On the flip side, single-family homes in prime locations are still seeing strong interest and less flexibility.”

That kind of split isn’t unique to Florida. In many metro areas, buyers might find leverage in one segment while still facing competition in others.

While national stats offer a useful snapshot, the real leverage is local. Buyers and sellers alike should compare today’s conditions with their market’s own history, not just the national narrative. What seems like a cooling market in one city might still be red-hot in another.

What to do if you’re a buyer

With market conditions starting to tilt in buyers’ favor, now might be the time to act, but strategy still matters. After all, competition hasn’t disappeared entirely. Here’s how to make the most of your position:

Get pre-approved

Even in a cooling market, speed can make or break your offer, especially in competitive neighborhoods or price tiers. A pre-approval letter shows sellers you’re serious and ready to move.

Watch the days on the market

Homes that have lingered on the market are increasingly ripe for negotiation.

“Buyers should not be concerned with higher days on market,” says Melissa Bailey, a top agent with the Jason Mitchell Group. “Go see the home that has been listed for 62 days. It could be your home!”

Use contingencies and timing strategically

In a more flexible market, buyers can regain tools they were often forced to waive, like inspection or appraisal contingencies.

“Right now, the biggest advantage is the ability to buy and sell at the same time—sellers are more open to contingent offers and willing to negotiate,” explains Ryan.

Being flexible with closing dates or offering quicker timelines can also help you stand out without raising your offer price.

Stay up to date

Understanding local inventory trends, median days on the market, and pricing patterns can help you recognize when a listing is overreaching and when it’s genuinely a deal.

In today’s market, knowledge is leverage, and a well-informed buyer can often win without overpaying.

What to do if you’re a seller

While the market might be softening, it’s still a solid time to sell if you adjust your approach to today’s more selective buyers. Here’s how to stay competitive and avoid sitting on a stale listing.

Price realistically

Gone are the days of aggressive overpricing and instant bidding wars. Today’s buyers are more cautious and cost-conscious.

“Sellers who were unrealistic in Q1 are adjusting to today’s buyer expectations,” says Darin Tansey, director of luxury sales at Douglas Elliman.

Listing high in hopes of negotiation room could backfire, especially with inventory rising. A well-priced home will attract more attention and better offers upfront.

Prepare your home well

Buyers are still drawn to clean, move-in-ready homes, and the basics still matter. Invest in staging, photography, and curb appeal. A strong first impression can make the difference between a quick offer and weeks of radio silence.

Know your market

In some areas, homes are still moving fast. In others, they’re lingering. The more your agent understands local demand, the more they can guide pricing, marketing, and timing strategies.

Don’t panic

Yes, buyers are gaining leverage, but that doesn’t mean you’re at a disadvantage.

Adjusting to this new reality doesn’t mean giving up value; it means staying nimble. Well-prepared, fairly priced homes are still selling, and in many areas, sellers remain in the driver’s seat, just with a lighter grip on the wheel.

A shift, not a flip

While it might seem like the market is suddenly favoring buyers, the reality is more nuanced.

“We’ve been in a seller’s market pretty consistently since 2016, when months’ supply averaged 4.4 months across the year. Since then, it’s averaged four or lower, signaling a tough market for buyers. Given the persistence of underbuilding relative to housing demand over the last decade, it’s not surprising that we have been through a really persistent seller’s market,” says Hale.

After years of seller dominance, conditions are gradually becoming more favorable to buyers. Inventory is up, price cuts are more common, and homes are taking longer to sell. But in many markets, especially in desirable neighborhoods or lower price tiers, sellers still hold meaningful leverage.

“While some are calling this housing market a buyer’s market, I would say that it’s more of a market in transition,” says Hale.

That means that while sellers won’t need to sacrifice all their power, they will need to adjust expectations.

“It is not realistic to expect multiple offers pushing home prices over market value,” says Missy Derr, a real estate adviser with Engel & Völkers in Atlanta. “Buyers finally have more than a fair shake at securing a home.”

Whether you’re buying or selling, this isn’t the time to rely on headlines alone. The national market might be cooling, but the story varies neighborhood to neighborhood. That’s why it’s more important than ever to watch local trends, compare current conditions to pre-pandemic norms, and work with an agent who understands the intricacies of your area.

Source: realtor.com  ~ By Allaire Conte ~Image: realtor.com

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7 Tips for First-Time Homebuyers

7 Tips for First-Time Homebuyers

Buying your first home can be exciting—and stressful. Beyond the challenge of finding the right home in your chosen neighborhood, many financial questions are sure to arise. With advance planning—and saving—the homebuying process will be much easier.

Our top tips:

  1. Don’t buy a home primarily as an investment. You can’t rely on home values always rising. If financial return is your primary goal, plan to own a property for at least five years.
  2. Know what you can afford. Use a mortgage calculator to figure out how much you can borrow based on your income and financial obligations. As a rule, keep your housing costs below 31–40 percent of your gross monthly income.
  3. Check your credit score. Having a better credit score can mean lower mortgage rates. Take steps to boost your score before you start house hunting.
  4. Understand the other costs involved.
    • Plan to pay property taxes and carry homeowner’s insurance.
    • A home inspection can help you plan for major repairs and routine maintenance.
    • A condo or home in a community that offers shared facilities like a pool may have monthly association fees.
    • Closing costs can be between 1.5-5 percent of the purchase price. These include mortgage applications, appraisal, transfer of property fees, and government recording fees. California is an escrow state, which means that funds are held by a third party to cover property taxes and insurance.
  5. Save for a down payment. For a conventional loan in California, a minimum down payment is 3% of the home price. However, the average down payment is 13%. Ideally, plan to put down at least 20% of your mortgage. Otherwise, you will have to pay private mortgage insurance (PMI) premiums on top of your mortgage payments until your Debt-to-Income (DTI) Ratio reaches 80%. The larger your down payment, the easier it will be to qualify for a mortgage and negotiate the lowest rate. Plus, when sellers review multiple offers, the more you put down, the more competitive your offer will be with other bids.
  6. Know what documents you need for your loan. Commonly requested loan documents include a fully executed agreement of sale for the property being purchased, bank and brokerage account statements, pay stubs, previous W2s, IRS Form 4506 (which authorizes a mortgage lender to obtain copies of your tax returns from the IRS), and homeowners’ insurance policies.
  7. Get pre-approved for a mortgage. Get a preapproval letter from a competitive mortgage broker that specifies how much a lender is willing to lend you and locks in the rate. This lets real estate agents and sellers know that you’re a serious buyer because your financing is already arranged. In competitive markets, many realtors now ask for a preapproval letter before showing any properties or entering a contract with a buyer.

Additional resources:

Source:

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Old vs New Homes: How old of a house should I buy?

Old vs. new homes

If you’re in the market to buy a home, you’ll likely wind up looking at lots of listings and touring many different types of properties. You may see some that are brand-new construction, and some that are a century old. Both have their appeal. If you’re not sure which one is best for you, here are some of the differences between old houses and new houses.

Old vs. new homes

While many aspects of housing have held true across the decades, there are plenty of different trends that affect homebuilding over time. Depending on the age of a home, you will notice different features, building methods and design choices.

Historic homes

Older homes are likely to have very different design sensibilities than modern ones. This is in part due to technological innovations, but also differing tastes over the years.

For example, truly historic homes often lack ductwork or central air systems, because those technologies did not yet exist when they were built. They may also boast old-school features like cast-iron radiators, clawfoot tubs and Victorian-style woodwork. And they tend to have smaller, more individual rooms, as opposed to the spacious open floor plans of modern homes.

These homes will also have different architectural styles than a newer build. For instance, midcentury homes often utilized unusual shapes and colors. And many neighborhoods built in that era have a cookie-cutter style, with the homes within each development all looking very similar to each other.

New-construction homes

If you’re looking at newly constructed homes, you’re likely to notice some current trends in how they are designed and built. Modern homes may sport features like metallic roofs and curvy building elements, for example. You may also see greater use of outdoor space — something that became much more important to homeowners during the pandemic.

Other trends may also be apparent, such as smart technology, energy-efficient features, central air systems, and living rooms oriented around space for a TV or entertainment center, rather than a fireplace.

Older home pros and cons

Pros

  • Location: Older homes are typically located closer to the center of towns, and in more walkable areas near more amenities. If you want a really central location, you may need to buy an older home.
  • Charm: Unique architectural details and flourishes give an older home personality that might be lacking in a newer, boxier build.
  • Value: A home with a strong sense of history, or one with a desirable architectural style in a historic neighborhood, may be worth more than a newer home of similar size.
  • Speed: If you’re buying a new-build home, you might face construction delays or supply-chain issues that slow down the process. With an old home, that isn’t a concern.

Cons

  • Outdated infrastructure: Technology has changed a lot over time, obviously. Old homes may still use older heating and cooling systems or have fewer electrical outlets than you’d like. Similarly, these homes might not be up to modern code, and renovating to bring things up to today’s standards can be costly.
  • Expensive upkeep: Brooks Conkle, a Mobile, Alabama–based Realtor, points out that ongoing maintenance costs can be higher in an older home. “The repair costs for older homes can quickly escalate,” he says. “Be sure to get a home inspection and really understand the home well. A newer home is [most likely] going to be in better condition and more energy efficient.”
  • Small or non-standard sizing: Older homes are often not designed for the size of modern appliances or furniture. You might find that your living room is too small for your sofa, for example, or that your kitchen requires an unusually sized refrigerator.

Newer home pros and cons

Pros

  • Energy efficiency: Newer homes are often designed with energy-efficient systems and are usually much cheaper to heat and cool.
  • Amenities: Newer homes can also take advantage of modern technology. That means they tend to already have conveniences like central air and dishwashers, for instance, whereas older homes might have to be retrofitted for this equipment.
  • Customization: If you’re buying a new-construction home, many builders offer the opportunity to customize it to your specific desires.
  • Home warranties: New builds also often come with home warranties. These can help protect you from major expenses that might pop up, such as unexpected HVAC or appliance issues.
  • Builder incentives: Homes being sold by the builder directly may come with additional incentives to buy, such as rate buy-downs.

Cons

  • High prices: With all their modern bells and whistles, newer homes are often more expensive than older ones. That can be particularly true of brand-new construction, where the buyer will be the first person ever to live there.
  • Homeowners associations: Many new developments are managed by a homeowners association, or HOA. That’s not necessarily a bad thing, but it does mean paying extra fees and dealing with restrictions on how you can use your home.
  • Competition: For a brand-new, move-in-ready home in a desirable location, you’ll probably face stiff competition — and in particularly busy markets, potentially even a bidding war.

Source: bankrate.com ~ By: T. J.  Porter ~ Image: Canva Pro

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Top 10 Mortgage and Home-Buying Myths & Truths

Mortgage and Home-Buying Myths & Truths

Buying a home is usually the biggest purchase people make, and the path to arriving at the right decision is often daunting. This is because even a slight oversight may lead to negative consequences in the future. To make matters even more complicated, prospective homebuyers have to find their way around various home buying myths.

While family and friends offer well-meaning advice, with some even suggesting that buying a house is a waste of money, bear in mind that not all you hear about buying a home might be true. Real estate agents and mortgage providers do what they can when it comes to debunking home buying myths, and most experts from this realm mention having to deal with similar misconceptions.

1. Renting is Cheaper Than Buying

Whether it’s cheaper to buy a home than continue living on rent depends on where you live. According to a report released by Realtor.com, buying a home in January 2020 was as affordable as renting, if not more, in 15 of the country’s 50 largest metros. Bear in mind that this only highlights the monthly costs involved in buying a home and living on rent. While the rent you pay is never coming back, your mortgage payments help you build equity in your home.

2. You Start the Process by Looking for a Home

One of the top myths about buying a home is that you need to start the process by looking for a suitable property. However, this might not be in your best interest because you may set your mind on a house, only to find out you do not qualify for the required mortgage amount. In this case, you’ll need to begin the house-hunting process again, already having wasted valuable time.

Ideally, you should begin the home buying process by ensuring that your finances and your credit score are in order. Then, you seek preapproval for a mortgage. Once you know how much you qualify for, look for homes accordingly.

3. Preapproval Comes with a Guarantee

Unfortunately, getting preapproved for a mortgage does not guarantee that a lender will approve your loan. For example, if your employment status changes after you receive preapproval, a lender might reconsider your application. This is also the case if there’s a change in your income or overall financial situation. While lenders review your creditworthiness before granting preapproval, they do so during the final underwriting as well.

4. A 20% Down Payment is Necessary

When it comes to the most commonly spread home buying myths, this one probably takes the cake. Sure, making a 20% down payment is a good idea. However, you may qualify for different types of mortgages by paying less than 20% upfront. When it comes to how much down payment you need, it boils down to your specific situation and the type of mortgage you’re after.

    • Conventional mortgage. You need to pay 5% to 15% as down payment, and you also need to account for private mortgage insurance (PMI).
    • S. Department of Veterans Affairs (VA) loan. Eligible applicants don’t need to make any down payment.
    • S. Department of Agriculture (USDA) loan. If you qualify, you may choose to make no down payment at all.
    • Federal Housing Administration (FHA) loan. These loans come with a minimum down payment requirement of 3.5%.
    • Jumbo loans. Down payment for these loans can be as low as 10%.

In addition, first-time homebuyers should ideally check if they qualify for any down payment assistance programs run by state and local government agencies.

5. People With Poor Credit Cannot Buy Homes

There is no minimum credit score that will disqualify you from buying a home, although the lower it is, the more difficult it becomes to find a mortgage. If you’re looking for a conventional loan, your credit score should ideally be over 620. However, people with slightly lower scores who have high incomes or are willing to make large down payments might also qualify.

When it comes to FHA loans, people with credit scores of over 580 may qualify if they meet a few other eligibility criteria. This is also usually the case with VA loans. If you wish to get a USDA loan, know that most lenders require scores of 640 or higher.

6. People With Student Loans Cannot Get Mortgages

Whether or not people who have student loans may qualify for mortgages depends on their specific situations. For example, if you’ve been making all your payments on time, have a low debt-to-income ratio, and have a good credit score, you might find it easy to qualify for a mortgage. However, the reverse holds true as well.

If you have a student loan, make sure you look at your DTI before applying for a mortgage. You should ideally try to get it to less than 36%, although some lenders consider applicants with DTIs as high as 43%. The lower it gets, the better.

7. The Down Payment is the Only Upfront Cost

Your down payment accounts for a major chunk of the money you need to pay upfront, but you need to account for other costs as well. As a buyer, you are also responsible to cover your loan’s closing costs. Closing costs may vary from 3% to 6% of a home’s selling price, and the state in which you purchase a home also has a bearing on how much you need to pay.

8. Your Mortgage is Your Only Expense as a Homeowner

One of the key facts about buying a house is that you need to account for more than just your monthly mortgage payment.  For example, you need to pay property taxes that vary based on where you reside. If you get a conventional mortgage and your down payment is less than 20%, you need to pay extra for private mortgage insurance (PMI).  Buying a house also requires paying homeowners insurance, which, according to Policygenius, averages at $1,899 per year.

As a homeowner, you’re responsible for your home’s ongoing maintenance.  In this case, you may expect to spend around 1% to 2% of the home’s buying price each year. Depending on where you buy a home, you might also need to pay homeowners’ association (HOA) or condominium association fees.

9. A 30-Year Fixed-Rate Mortgage is the Best

While 30-year fixed-rate mortgages find several takers, they don’t work equally well for everyone, which is why this is among the top mortgage myths. Bear in mind that you get several alternatives from which to choose. These include adjustable-rate mortgages, balloon mortgages, interest-only mortgages, as well as 10-. 15- and 20-year fixed-rate mortgages.

People who opt for 30-year fixed-rate mortgages do so because of two basic reasons. First, the interest rate remains the same over the course of the loan term, so there’s no variation in monthly payments. In addition, the monthly payments of a 30-year mortgage are noticeably lower than that of a 10- or 20-year mortgage.  However, the interest you end up paying for a 30-year mortgage will be significantly higher than that of a 15-year mortgage.

The mortgage that works best for you depends on your financial situation as well as the duration you plan to stay in the house you purchase. Consequently, it’s ideal that you learn about the effect of interest rates and loan terms on mortgages before making a decision.

10. Select the Lender With the Lowest Interest Rate

Interest rates play a key role in deciding which mortgage provider to select, but there are other factors to consider as well. For instance, a lender might offer a low interest rate and make up for the same by charging steep fees. When you’re comparing lenders, you should stick to looking at the annual percentage rate (APR) because it gives you an indication of how much you’ll end up paying as interest and fees combined.

Given that paying off a mortgage is typically a long-drawn affair, it’s important to look at the level of customer service a lender provides. Selecting the right mortgage provider also requires looking at flexibility in terms, which may come in the form of weekly/biweekly/monthly payments, payment pauses, and redraw facilities.

11. Interest Rate Are Increasing

This makes it to the list of myths about home ownership because although interest rates increased significantly in 2022, one needs to look at the bigger picture. For instance, 30-year fixed-rate mortgages came with interest rates of around or over 7% during the 1990s, and stood largely above 6% before the Great Recession (2007 to 2009).

In addition, while the average interest rate for a 30-year fixed-rate mortgage peaked at 7.08% in October and November 2022, it dropped to 6.09% in the week ending on February 1, 2023. Most experts predict that this number may vary from 5.5% to 6% for the rest of the year.

12. Buying a Fixer-Upper Saves Money

If you think you might be able to save money by buying a home that is a bad shape and fixing it on your own, you might want to give your decision some serious thought. For starters, you should have some knowledge about construction and making renovations, as well as the required skills and tools.

What attracts homebuyers to fixer-uppers is that they get the opportunity to spend less upfront. However, you need to account for the money you’ll need to spend on repairs and renovations, because the total cost may exceed the cost of a comparable home that’s ready to move in soon after the purchase.

13. There’s No Need for Professional Home Inspections

This is one of those home buying myths that might end up costing you a tidy sum in the long run. Even if you think another prospective buyer might beat you to the finishing line by choosing to skip the home inspection stage, it’s best to err on the side of caution. Remember that checking a home on your home is not the same as getting a professional to carry out the process.

While a professional home inspection comes at a cost, it may help you save money in the long run or even steer clear of making a bad decision. The American Society of Home Inspectors (ASHI) Standard of Practice indicates that a home inspection involves checking a home’s:

    • Interior
    • Exterior
    • Structural system
    • Roof system
    • Plumbing system
    • Electrical system

14. You Should Buy a Home During the Spring Season

Sure, the real estate industry is typically buzzing with activity during the spring season, but this does not mean you need to restrict yourself to buying a home during this period. Besides, the truth about buying a house is that you don’t really have to wait for the perfect time to move forward.

Looking to Purchase a Home on Long IslandContact Us

While the spring season usually sees more real estate transactions than other periods, high competition may leave little room for negotiation. The fall, on the other hand, usually brings with it a fair amount of inventory along with reduced competition. This means you may land a good deal even if you choose to buy a home in the fall.

15. Schools Don’t Play a Role if You Don’t Have Children

Prospective homebuyers who don’t have children might have heard that there’s no need to pay attention to schools. However, there’s more to schools in a neighborhood than just educating children. This is because the presence of good schools is typically an indication of good neighborhoods. Besides, homes in reputable school districts tend to have higher values, and they usually manage to find takers even the real estate market is down.

Conclusion

Debunking home buying myths is crucial because there is no dearth of prospective homebuyers who approach the process with various misconceptions. For example, while some might lead you to believe you’re better off as a renter, you might actually benefit by buying a home instead.

More often than not, working with a realtor or a real estate agency is ideal. This is because you then have a professional doing all the groundwork for you as well as someone you may turn to for advice. Once you decide you wish to buy a home, it’s also important to find a suitable lender and get preapproval. This way, you know just how much money you may get in the form of a loan.

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What to Consider Before Buying a Rental Property

Buying a Rental Property

If you’re thinking of buying a rental property, it’s time to become familiar with all of the quirks of investing in real estate.

Key Takeaways:

    • Renting out property seems like an easy way to make money, but many things can complicate the process.
    • Get up to speed on tenant-landlord laws so you don’t violate any legal rules.
    • Keep a cash reserve on hand for surprise expenses. This isn’t a side business you should be running paycheck to paycheck.

You know why you want to invest in a rental property. You envision making passive income, raking in the dough, as your tenants pay you every month. It’s a smart goal, and you certainly can make money as a real estate investor, but as anyone will tell you, it isn’t exactly passive, easy or cheap. You have to spend money before you make money, and you’ll have to spend money while you’re making it, too.

Still, if you’re thinking of buying a rental property, it’s time to become familiar with all of the quirks of investing in real estate.

If you’re looking at buying a rental property, be sure to consider these things first:

  • Know your costs.
  • Have a great real estate lawyer.
  • Make sure your property isn’t subject to rental restrictions.
  • Be mindful of surprise costs.
  • Understand what being a landlord really means.
  • Don’t assume hiring a property manager is a perfect solution.
  • Prepare for your rental to sit vacant.
  • Make sure you have plenty of cash reserves.

Whether you’re buying a house, an apartment building, a condo, a townhouse or whatever piece of property you’re zeroing in on, it’s important to purchase a rental property you can comfortably afford. But many first-time investors don’t realize what they’re getting into. There are the closing costs, which can’t always be financed. There may be a hefty down payment. There’s the monthly mortgage. You need to determine what the rent is going to be. This is all just for starters.

The rent amount can take a while to determine. “Many investors subscribe to the 1% rule, which suggests that monthly rent should be roughly 1% of the property’s purchase price. That would mean a $200,000 home should rent for roughly $2,000 per month,” says Debbie Fales, communications and marketing manager for Navigator Private Capital, a real estate lender in Annapolis, Maryland.

“While this might be a helpful rule of thumb, it’s rarely that simple,” Fales says. “We suggest diving deeper into listing aggregators like Apartments.com or Rent.com and comparing similar properties to find the going rental rate.”

Paul Dashevsky is a Los Angeles-based real estate investor and the co-CEO of GreatBuildz.com, a service that matches homeowners with general contractors, and co-CEO of MaxableSpace.com, which builds and manages guest homes and other tiny house projects.

He advises: “Don’t buy based on emotion and don’t overpay. You’re not living in this home, so the only important metric is what your net revenue will be.”

Nicole Rueth, founder of The Rueth Team, a mortgage lender in Englewood, Colorado, says, “Run the numbers like a business. Higher prices are here to stay, so instead of waiting for prices to drop, find the properties that cash flow with a little creativity. They’re out there; I know because I’m helping investors find them.”

But she warns, “If it doesn’t cash flow on paper, don’t buy it.”

Rueth says too many novice investors get caught up in making the home a little too perfect before renting it out. That’s admirable to be conscientious, but it could financially wipe you out if you’re not careful.

“Remember, you don’t live there. Renovate to your market, not your tastes. You’re not moving in,” she says. “If it makes you money, it’s pretty enough.”

You’ll want a skilled real estate attorney reviewing your contract with the entity you’re purchasing from, as well as when the one you’re drafting for your tenants. Every state has its own approach to the landlord-tenant relationship, and you don’t want to be be a landlord who breaks a bunch of laws. There are plenty of ways you can violate the law, too, from charging too high of a security deposit to not making necessary repairs in a timely manner.

But a good lawyer is just the start.

“Build your A-team,” Rueth says. “Lenders, agents, handymen, CPA and property managers are critical to not only a successful rental but a scalable business.”

Homes that belong to a homeowners association, also known as an HOA, can be challenging to rent out, says Dashevsky.

“If your property is in an HOA, you have little control of the association costs and how they might increase over time,” he says. This means HOA costs could affect what rent you charge your tenant or wreck your profit margin.

“Also,” Dashevsky says, “your tenant could run afoul of the HOA rules.”

Dashevsky isn’t a fan of renting out a home with a swimming pool. Sure, you can charge more, but only in theory, according to Dashevsky. “I find that you don’t get an increase in rent for a home with a pool,” he says.

He also doesn’t like what a pool will do to your insurance, and then there’s the cost of maintaining the pool that you have to think about.

Surprise costs can slash your profits and, in some cases, exceed them. These can range from rising property taxes to the cost of maintenance and repairs.

“It’s hard to expect the unexpected,” Fales says. Yet you need to do just that when you rent property.

“So it pays to secure rental property insurance, commonly referred to as a landlord policy,” Fales says.

She also recommends putting aside money for maintenance, regular things you know you’ll probably have to pay for, like maybe an exterminator or a lawn mowing service, to surprise maintenance costs, like a plumber or a roofer.

“And, of course, you should have a fair idea of utility costs and energy usage before you pull the trigger,” Fales says.

Becoming a landlord doesn’t just mean taking on the expense of maintaining a rental property. It also means having to be available at all times and deal with tenant issues as they arise. If there’s a plumbing, heating or cooling problem, for instance, you’ve got to promptly fix it – or hire someone to. You’re potentially on call, 24/7.

If that excites you, and it may, especially if you’re good at making repairs or a real people person, then you have nothing to worry about.

It’s certainly possible to minimize your work as a landlord by hiring a property manager to oversee your rental. But there are pros and cons to such a move.

“Property managers just don’t have the same incentive as you to manage the property at its highest efficiency,” Dashevsky says. “If possible, manage the property yourself.”

But Rueth says, “Don’t assume self-managing saves you money. If managing tenants stresses you out, costs you time or makes you hate investing, you’re paying a price either way. Know your strengths and hire for the rest.”

When it comes to making money on a rental, a lot of the financial upside you see is apt to come in the form of property appreciation. But you’ll still need to cover your costs along the way, and even when there’s demand for housing, you still could find that your property isn’t always going to be rented out.

“For a rental investment to pay off, you need tenants,” Fales says. “So you’ll want to consider the housing supply in the area in relation to the estimated demand. You want your estimated vacancy rate to be as low as possible, but it should also be based in reality. We advise clients to take advantage of public data by consulting the U.S. Census Bureau, where they list vacancy rates by region.” (You can find that information here.)

Dashevsky has a suggestion, especially if you find your properties are sometimes vacant.

“Rent your property slightly under market, like $50 to $100 under the peak market rent you believe is the right price. It’s not a large amount to lose every month, and it will get your unit occupied faster,” Dashevsky says. This will mean more rental income, he adds, and you’ll increase your odds of the tenant staying longer, which also will mean additional steady rental income.

Because owning a rental property can cost more than expected, and you can have those surprise costs mentioned earlier, it’s important to have plenty of cash reserves on hand to cover any expenses as they arise. You might have to pay for a sudden repair, or you might end up with an apartment that remains vacant for a few months until a major issue is resolved.

Or, hey, maybe it’ll all happen at once.

“Don’t underestimate reserves,” Rueth says. “A water heater, roof leak or tenant turnover will eat your profits if you didn’t plan for it.”

Having a solid financial cushion in the bank can help you avoid cash flow issues when unexpected situations arise. And it might buy you more peace of mind. That said, when you own a rental property, while you can certainly become rich – that’s why renting properties is a thing – there really are endless opportunities for something to go wrong, and you’ll need to come to terms with that before taking the leap.

Source: realestate.usnews.com ~ By Geoff Williams ~ Image: Canva Pro

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Is It Better To Rent or Buy a Home?

Is It Better To Rent or Buy a Home?

You’ve probably asked yourself lately: Is it even worth trying to buy a home right now?

With high home prices and stubborn mortgage rates, renting can seem like the safer choice right now. Or maybe your only choice. That’s a very real feeling. And perhaps buying today isn’t your best move; it’s not for everyone right away. You should only buy a home when you’re ready and able to do it, and if the timing is right for you.

But here’s the thing you need to know about renting.

While it may feel like a safer bet today – and in some areas might even be less expensive month-to-month than owning – it can really cost you more over time.

In fact, a recent Bank of America survey found that 70% of aspiring homeowners worry about what long-term renting means for their future. And they’re not wrong.

Owning a home may seem way out of reach, but if you make a plan now and steadily work toward it, homeownership comes with serious long-term financial benefits.

Homeownership Builds Wealth Over Time

Buying a home isn’t just about having a place to live – it’s a step toward building your future wealth.

Why? Home prices typically rise over time, which means the longer you wait, the more expensive it is to buy. And even in some markets where home prices are softening today, the overall long-term trend speaks for itself (see graph below):

a graph of a price of houses sold in the united statesAnd as home values rise, so does your equity when you’re a homeowner. That’s the difference between what your home is worth and what you owe. So, with every mortgage payment, that equity grows. Over time, that becomes part of your net worth.

Today, the average homeowner’s net worth is nearly 40X greater than that of a renter. That’s a shocking difference, and the dollars in the visual below don’t lie (see graph below):

a green rectangle with white textAnd it’s one of the big reasons why Forbes says:

“While renting might seem like [the] less stressful option . . . owning a home is still a cornerstone of the American dream and a proven strategy for building long-term wealth.”

The Biggest Downside of Renting

So, short-term, why does renting feel like a simpler choice? Lower monthly payments, less responsibility, no strings attached. But long-term? It can sting.

For decades, while home prices have been rising, rent has gone up too. And while rent has held rather steady more recently, history shows the overall trend is up and to the right. That makes saving for a home more complicated than ever (see graph below):

a graph of a number of peopleThat kind of financial uncertainty has a real impact. In the same Bank of America survey, 72% of potential buyers said they worry rising rent could affect their current and long-term finances.

Because rent doesn’t build wealth. It doesn’t come back to you later. It pays your landlord’s mortgage – not yours.

So, whether you rent or own, you’re paying a mortgage. The question is: whose mortgage do you want to pay?

Renting vs. Buying: What Really Matters

Think of it this way. Renting means your money is gone once you pay it. Owning means your payment builds equity – like a savings account you can live in. Sure, buying comes with responsibility. But it also comes with the kind of reward that grows over time. And that’s why you need a solid plan to get there.

As Joel Berner, Senior Economist at Realtor.com, explains:

“Households working on their budget will find it much easier to continue to rent than to go through the expenses of homeownership. However, they need to consider the equity and generational wealth they can build up by owning a home that they can’t by renting it. In the long run, buying a home may be a better investment even if the short-run costs seem prohibitive.”

Bottom Line

Renting may feel more do-able today. But over time, it could cost you more – without helping you build anything for your future.

If homeownership feels out of reach today, you’re not alone. And the first step toward getting out of the rental trap is to set a plan. Connect with an agent to set your specific goals and explore your options – so you’re ready when the time is right.

Source: keepingcurrentmatters.com ~ Image: Canva  Pro

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What Is Escrow? How It Keeps Homebuyers and Sellers Safe

How Escrow Keeps Homebuyers and Sellers Safe

An escrow account is a secure holding area for money and documents during a real estate transaction. It protects buyers, sellers, and lenders by ensuring no funds or titles change hands until all terms of the sale are met.

Escrow might sound complicated, but it’s one of the most important safeguards during the homebuying process.

Here’s a breakdown of how escrow works, who manages it, and how it protects both sides of the deal.

What is escrow in real estate?

In real estate, escrow is a legal arrangement where a neutral third party (usually an escrow officer or company) holds important items until the deal officially closes. These items can include the earnest money deposit, the signed purchase agreement, and other transaction documents.

The escrow process ensures that neither the buyer nor the seller is at risk of losing money or ownership if the other party doesn’t fulfill their part of the contract.

How escrow works during a home sale

The escrow agent is often someone from the real estate closing company, an attorney, or a title search company agent (customs vary by state), says Andy Prasky, a real estate professional with Re/Max Advantage Plus in Twin Cities.

Your agent will

  • Hold the buyer’s earnest money deposit in a secure escrow account

  • Collect documents from both parties, such as disclosures and inspection reports

  • Ensure all contract conditions are met (e.g., home inspection, loan approval)

  • Disburse funds and finalize the sale once all contingencies are cleared

Once all conditions are met and the transaction is finalized, the escrow officer will record the title transfer, release the funds to the seller, and the buyer will receive ownership of the home.

What does escrow cost?

Escrow fees typically range from 1% to 2% of the home’s purchase price, but the total cost can vary based on location and the complexity of the transaction.

Who pays the escrow fee—the buyer, the seller, or both—depends on your purchase agreement and local customs.

What is earnest money, and how is it used?

Earnest money—also known as an escrow deposit—is a dollar amount buyers put into an escrow account after a seller accepts their offer. The escrow company holds the money in an escrow account for the duration of the transaction.

Another way to think of it is as a “good-faith” deposit into an escrow account, which will compensate the seller if the buyer breaches the contract and fails to close.

Can you borrow earnest money from a lender?

Most homebuyers come up with cash for escrow and deposit it into the escrow account from their own funds. The payment amount is small compared with the cost of the home and the loan, and the homebuyers might not even have a mortgage lender yet when they make an offer on a home.

However, earnest money can be borrowed from your lender, but certain rules apply. First-time buyers are most likely to need to go to their mortgage lender to make this escrow account deposit. Your lender will ultimately count the deposit toward closing costs and the down payment on the house.

How escrow protects buyers and sellers

Escrow might seem like a pain, but here’s how it can work in your favor.

For homebuyers

Let’s say, for example, the buyer had a home inspection contingency and discovered that the roof needed repairs. The seller agrees to fix the roof. However, during the buyer’s final walk-through, she finds that the roof hasn’t been repaired as expected. In this case, the seller won’t see a dime of the buyer’s money until the roof is fixed. Talk about a nice safeguard!

For home sellers

Sellers benefit from escrow, too. Let’s say the buyers get cold feet at the last minute and bail on the transaction. This might be disappointing to the seller, but at the very least, buyers have typically ponied up a sizable chunk of change for their earnest money deposit. This money, often totaling 1% to 2% of the purchase price of a home, has been held in escrow. When buyers back out with no legitimate reason, they forfeit that money to the seller—a decent consolation for the sale’s failure and the expense of making mortgage payments and other expenses while the home was off the market.

What is an escrow account for a mortgage?

After you buy a home, your mortgage lender may set up an escrow account to pay future property-related expenses like the following:

Each month, a portion of your mortgage payment is deposited into this escrow account. When tax or insurance bills come due, your lender pays them directly using funds from that account.

If you overpay into escrow, you may get a refund check and see a reduction in your monthly payment. If costs increase, your lender might raise your mortgage payments to cover the difference.

Why escrow matters

Escrow is a safety net in real estate. It ensures that everyone involved (buyer, seller, and lender) has their interests protected, and that money and ownership change hands only when everything is in order.

Whether you’re navigating earnest money, closing costs, or a mortgage escrow account, understanding how this process works can save you stress—and money—during one of the most important financial decisions of your life.

Source: realtor.com ~ By Cathie Ericson ~ Image: Dale Taylor/iStock

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Is a 15-or 30-Year Mortgage Right for You?

Is a 15- or 30-Year Mortgage Right for You?

You can build equity faster with a shorter term since more of your payment goes toward paying down principal.

Takeaways

    • When choosing a mortgage, two main options is a 30-year term and a 15-year term, though some lenders have additional options.
    • A longer-term mortgage will usually mean lower monthly payments, but a higher cost over the life of the loan; a shorter-term mortgage will reduce the overall loan cost and may have a lower interest rate, but will require higher monthly payments.
    • No matter your loan term, you can make additional payments toward the principal to save money and pay your mortgage off faster.

If you’re preparing to buy a home, you will need to look at not only mortgage interest rates, but also loan types and terms. Your mortgage term is how long you have to repay the loan, and most terms are 15 or 30 years.

Should you get a 15- or 30-year mortgage? If you can afford the payment on a 15-year mortgage, the long-term interest savings are great. But the lower monthly payment of a 30-year mortgage could offer you more flexibility if your financial situation changes.

Here, we break down the 15- vs. 30-year mortgage debate, including the pros and cons of each and how to decide between the two.

What Is the Difference Between a 15- and 30-Year Mortgage?

The primary difference between a 15- and 30-year mortgage is the length of time to pay off the loan.

A 15-year mortgage pays off your home in half the time of a 30-year loan and saves on interest overall. Borrowers typically qualify for lower interest rates for 15-year loans because the shorter term reduces risk for lenders.

The shorter term also means that more of your payment goes toward paying down principal, so you can build equity faster than with a 30-year mortgage. The trade-off is a higher monthly payment than a 30-year mortgage – at current rates, 20% or more. “The higher costs may not leave room for additional homeownership costs, such as renovations or unexpected repairs and maintenance,” says Shelby McDaniels, national director of business development at Chase Home Lending.

A 30-year loan’s lower monthly payment can provide more cushion in your budget. This can help make homeownership a possibility for more people.

30-Year Mortgage Pros and Cons

Pros

    • Lower monthly payments than a 15-year loan because they are stretched out over a longer time.
    • Easier to qualify for this loan with its smaller payments.
    • More room in your budget for other financial goals.

Cons

    • Higher interest rates because lenders consider a 30-year loan a greater risk than a 15-year loan.
    • Higher total interest paid.
    • Slower growth in home equity than a 15-year loan.

15-Year Mortgage Pros and Cons

Pros

    • Lower interest rates compared with 30-year loans because lenders take on less risk.
    • Lower total interest charges than a 30-year mortgage
    • Quicker loan payoff.
    • Faster equity growth, with more of your payment going toward principal.

Cons

    • Higher monthly payments compared with a 30-year loan.
    • You may not qualify for as big a loan because of the higher monthly payments.
    • Larger payments leave less flexibility for other financial goals, such as saving.

Crunching the Numbers: 15- vs. 30-Year Mortgage

Let’s say you need a $300,000 mortgage and qualify for a 15-year at 6.5% or a 30-year for 7.5%. Here’s how those costs would compare:

15-Year 30-Year Difference
Monthly Payment $2,613 $2,098 $516 savings per month if you choose a 30-year mortgage
Total Interest Paid After Full Term $170,398 $455,152 $284,754 savings in total if you choose a 15-year mortgage
Total Loan Amount After Full Term $470,398 $755,152

Alternatives to a Standard Mortgage Payoff

Exploring Other Mortgage Terms

If you’re on the fence between a 15-year and a 30-year loan, some lenders offer terms in the middle, such as a 20- or 25-year mortgage term. There are even some companies with 10- or 40-year terms if you’re looking for even more flexibility. Ask your mortgage professional to run the numbers to see which term option is best for you.

Paying Off Your 30-Year Mortgage in 15 Years

“There are tricks and hacks to dramatically reduce interest over the loan term,” says Erik Katz, president and founder of Rustic Country Real Estate in West Point, California. “If you take a 30-year loan and pay a few extra hundred a month, you may pay that mortgage down in 15 years anyway.”

Katz also suggests making an extra full payment at the end of each year if you can swing it to make a nice dent in the principal. You can also set up mortgage payments every two weeks, which results in an extra payment per year.

This way, if things ever get tight financially, you’re not locked into a higher payment. Just confirm that your lender doesn’t charge a prepayment penalty.

Refinancing

Starting off with a traditional 30-year term is best for many people. But if circumstances arise a few years into the mortgage that might allow you to refinance to a 15-year loan, such as a dramatic drop in interest rates, it could be worth exploring.

On the flip side, if you start out with a 15-year mortgage and the payments become difficult to manage, you can see if stretching it out into a longer loan term might help ease the financial pressure. Just be aware that doing so will mean paying more interest over the life of the loan.

15- vs. 30-Year Mortgage: How to Decide

Deciding between a 15- or 30-year mortgage comes down to finances and flexibility. Keep in mind that 30-year mortgages are far more common than 15-year loans for a reason: They are more affordable. The lower payment will give you more wiggle room, especially if your financial future is uncertain or your dream home wouldn’t be within reach with a 15-year mortgage.

On the other hand, a 15-year mortgage can offer savings if you have steady income to support your monthly payments and other expenses, including emergencies. “If the interest rate is a lot lower for the 15-year, that’s where I would advise to run the numbers,” says Katz.

Age may be a factor in your decision when weighing a 15- versus 30-year mortgage as well. “A 15-year mortgage could be a better option for those who are determined to pay off additional debts quickly, especially those who are preparing for an early retirement and want to minimize monthly payments,” says McDaniels.

A 40-year-old borrower, for example, could pay off a 15-year mortgage by age 55 while still owing on a 30-year mortgage through age 70.

If your ultimate goal is to save money, says Katz, “the name of the game is how fast can you get your house paid down.” Do the math and calculate your potential mortgage payment before you decide.

Source: money.usnews.com ~ By Dawn Papandrea ~ Image: CanvaPro

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Should You Buy a House With Cash?

Should You Buy a House With Cash?

Before you go all-in with your money, consider these caveats for buying a home with cash.

If you have enough money saved and the purchase won’t drain your savings, a cash purchase could be a good idea.

Key Takeaways:

  • Most people finance a new home, but anywhere from a quarter to a third of homebuyers pay in cash.
  • With high interest rates, buying a house with cash makes more sense now than it did a few years ago.
  • A mortgage is probably a better option if you can’t pay cash without draining your savings.

If high interest rates have you dreaming about buying a house with cash, you aren’t alone. Although this is a growing trend, most people still finance their homes. According to the National Association of Realtors’ 2024 Profile of Home Buyers and Sellers, 26% of homeowners paid for their home in cash last year, an all-time high. That still means 74% of homeowners went the traditional route of taking out a mortgage.

If you think you can swing a cash purchase, should you? Here’s what you should consider when contemplating buying a house with cash.

The Pros: Why Buying a House With Cash Is a Great Idea

You Own the House Right Away

This is obviously one of the best things about buying a house with cash. You own it, right off the bat. You have no mortgage payment. Life is good. As Lindsey Harn, a real estate agent with Christie’s International Real Estate in San Luis Obispo, California, says: “You own the home, free and clear.”

By skipping the mortgage now, you can rest assured that any increase in value on a property directly benefits you when it comes time to sell. With no mortgage to pay off, 100% of the profits from the sale go into your wallet, making it easy to purchase another home with cash or finance a larger purchase with plenty of cash on hand.

You’ll Save a Lot of Money

In January 2021, mortgage interest rates were 2.65%, and by October 2023, they were 7.79%. More recently, mortgage rates have hovered just under 7%.

When interest rates were historically low, borrowing was cheap. But now, “with current mortgage rates around 7%, mortgages have become less attractive,” says Jay Zigmont, a certified financial planner and CEO of Childfree Wealth, a life and financial planning firm in Mount Juliet, Tennessee.

“If you buy a house with a mortgage and invest your cash in the market, on average you are unlikely to beat a 7% return after taxes,” Zigmont says. He says homeowners who can skip a mortgage are essentially getting “a risk-free, tax-free return of the interest.”

He adds: “If I could invest my money and get a guaranteed 7% tax-free return, I’d do that all day.”

It’s also important to remember that by financing, you take on additional costs with loan origination fees and the interest paid over time, so the net cost of buying your home is less when paid for in cash.

By paying cash, you won’t have to make monthly payments to a lender, and when the house increases in value, that directly boosts your personal wealth.

Sellers Love All-Cash Offers

Especially if you’re looking to buy an in-demand house getting a lot of interest, an all-cash offer can provide the needed leg up to get the seller to consider your offer more seriously than others. You may not even be the highest bidder, but the seller knows a cash offer will make the closing process easier.

“I’ve had sellers take cash offers over higher financed offers because, for them, it meant a guaranteed, problem-free closing,” says Brett Johnson, a real estate investor, licensed real estate agent and owner of New Era Home Buyers in Denver.

Generally, if you’re competing against another buyer, an all-cash offer puts you in a stronger position to negotiate, Johnson says. “Cash offers are appealing for sellers because they remove financing risk and provide more certainty of close,” he says.

Harn agrees. “It’s typically considered an easier transaction, so if you are competing with multiple offers, the seller may be more likely to take your cash offer as a sure thing, versus an offer contingent upon the buyer obtaining a loan and getting funding,” she says.

Cash Speeds Up the Closing Process

Part of the attractiveness of your all-cash offer is the elimination of the waiting period often imposed by mortgage lenders, filled with due diligence and underwriting to receive and approve the loan.

With a cash offer, you have the freedom to choose which aspects of the due diligence process are most important, rather than those that are required by a lender. For example, you could choose to forgo an appraisal while still having the inspection done.

While your speedier homebuyer timeline can be a powerful tool in negotiations for a purchase, don’t get carried away by neglecting aspects of due diligence that could reveal serious problems with the property in question.

“You can usually close sooner,” says Rose Krieger, a Spokane, Washington-based senior home loan specialist with Churchill Mortgage. “Instead of following the schedule set by a lender, items like the home inspection and appraisal can be completed at your discretion.”

You’re doing this on your own timetable and not a lender’s. That can smooth the process for you and the seller.

In some areas of the country that have been battered by climate change, you may find homes for sale that are uninsurable, Zigmont says. “If they are uninsurable because of previous claims, the only option is to buy it with cash. We are likely to see an increase in uninsurable homes in areas like Florida and California,” Zigmont says.

Whether you really want to pay cash for a house you can’t insure, however, is something to consider.

The Cons: Reasons Not to Buy a House With Cash

You May Be More Prone to Making Mistakes

It may sound freeing to hear you don’t have to get your house appraised or looked over by a home inspector or get homeowners insurance, but that doesn’t mean you shouldn’t do those things.

“While a home inspection and appraisal are not necessary with a cash purchase, it is still recommended to have both of them done,” Krieger says. She also says cash buyers need to have a full picture of the true value of the home and any issues you might inherit.

“The biggest mistake cash buyers make is assuming they don’t need due diligence,” Johnson says. “Just because there are no lender requirements, don’t forgo property inspections or title research. I’ve witnessed buyers rush into deals without checking liens, zoning issues or structural problems, only to face costly surprises later.”

You Could Be House Rich and Cash Poor

“Another mistake individuals make is putting too much equity into a house and not retaining enough liquidity,” Johnson says. “Real estate isn’t liquid, and I’ve seen investors who regretted not retaining enough working capital for when unexpected expenses came up.”

It’s not wise to purchase a home with cash if you have just enough to pay for it. It’s a good idea to maintain an emergency fund that will sustain you for at least a few months if you were to lose your income – covering things like car maintenance, unexpected medical costs and your regular grocery and utility costs for up to six months. You’ll also want to have cash on hand for any number of unexpected house needs, from a new roof to a furnace that’s on its last legs.

“While owning a home free and clear is great, if you have to withdraw from your retirement or sell stocks and pay taxes, getting a small loan may be better than creating a tax implication for yourself,” Harn says.

In general, after you pay for a house, you need to think about a few other future expenses that may be on the agenda:

  • Furnishing and maintaining your home. If you just bought a house with cash, you probably have enough money to buy living room furniture, a bedroom set, a lawn mower or whatever you’re going to need. Presumably, with no mortgage payment, you’ll have money available every month to go toward stocking your pantry and updating your wardrobe, but think about whether such a significant cash outlay will hurt your quality of life.
  • Do you have other significant expenses coming up? If you have children to put through college soon, a wedding to pay for or other expenses coming up, like buying a new car, it could be better to put down a sizable downpayment, allocate some of the cash for upcoming expenses and borrow the rest.
  • Closing costs. “When paying with cash, there are still closing costs associated with the purchase via title and closing fees,” Krieger says. “It’s also critical to remember that you will be responsible for making your homeowner’s insurance and property tax payments on your own versus having an escrow set up for you by a lender.”

Should You Buy a House With Cash?

It depends. Everybody’s financial situation is different. But if you have enough money saved to purchase a house outright and the purchase won’t drain your savings, a cash purchase could be a good idea. It may be worth your time to schedule a meeting with a financial advisor to help you run through your own personal pros and cons.

As Johnson puts it, “A cash purchase can be a wonderful tool, but use the same amount of caution on a cash purchase as on a purchase with financing.”

Source: realestate.usnews.com ~ By: Geoff Williams ~ Image: Canva Pro