Haisler: Homeownership still makes sense for most Americans
Many people today think that home buying is out of the question for them for any number of reasons. The truth is today may be the best time for you to buy a home. Let’s explore a few scenarios:
• “I lost my house in a distressed sale.” Many people lost their homes in the past few years. You’re not alone. In fact, so many have lost their homes that the impact on your credit may not be as bad as you think. That is, lenders are starting to loosen their credit requirements and are able to approve loans for people who are still improving their credit. Obviously, to repair one’s credit a person must be making their payments again. They need to have their negative situation behind them (not currently active). But, frankly, even some of those people are still able to qualify for loans today. However, let’s note that those are exceptions.
There are loan programs available today for people with credit scores at 620. In fact, one excellent program was recently announced by Gov. Pat Quinn at the Illinois Association of Realtors headquarters at the end of March. The Welcome Home Illinois program is already being sought by close to 1,000 Illinois residents seeking to buy a home.
Back to distressed sales, if someone has been paying their bills since the write-off of their home, it could take less than three years – in the best situations – for their credit score to rebound back into the 600s.
• “I don’t have thousands of dollars for a down payment.” Buyers don’t need thousands of dollars to buy a home. Down payments can be as little as 3 percent (FHA loan) of the purchase price. So, for a $200,000 house that’s just $6,000. For a $90,000 house – and McHenry County has many of these available – the down payment could be as low as $2,700. Yes, there are some additional fees, such as an appraisal fee, lender fees, escrow reserves and the like, but there are also many down-payment assistance programs to offset those as well.
Back to the Welcome Home Illinois program. This program offers up to $7,500, as a five-year forgivable loan, to qualified buyers. That should cover the down payment. Besides the FHA programs with 3 percent down, some conventional products offer just 5 percent down loans (95 percent financing).
• “My payment is going to be too high because of high interest rates.” While many have been predicting that interest rates will rise – and eventually they will – they haven’t begun to yet. Rates today are incredibly low. A 30-year, fixed-rate mortgage for someone with good credit and who will escrow their taxes might be able to get a loan at 4 percent.
That’s unheard-of low. Look at the history of interest rates and this is the bottom of the chart. It could be argued that rates truly can’t get lower than this. Even a couple of years ago, when rates reached their absolute lowest, they were only 0.5 percent lower than today.
The real question is do you want to wait to buy a house until rates rise? Of course not. A 1 percent increase in the interest rate could cost you thousands of dollars of buying power. For example, instead of being able to purchase a $250,000 house today, you could afford only $225,000 at 5 percent with 5 percent down. That’s a lot of house to give up.
• “The homes on the market are all foreclosed homes in poor condition.” First, this is just not true. Recent statistics show that about 55 percent of recent transactions were traditional sales. About 20 percent of them are short sales while the remaining 25 percent are foreclosures. Secondly, not all of the foreclosures and short sales are in bad shape. Granted, many need some routine maintenance or other minor work, but banks today that are repossessing homes are typically spending thousands of dollars on repairs to put these properties back into livable condition before the homes go to market. Even if the home needed repairs, sometimes those can be negotiated into the contract.
• “Homes aren’t a good investment.” Most people realize this is not true. However, like anything else, overpaying for something does make it hard to recoup one’s investment.
Almost everyone who bought a home between 2005 and 2008 likely took a hit to their equity position, but that’s not to say it was a bad investment. Housing is a stable, long-term investment. It is not meant to be a quick-flip, quick-gains commodity. Stick it out for the long haul, enjoy the benefits of tax deductions (while they still exist). Know your monthly payment includes a portion to equity, so it’s like you’re making a payment to a savings account monthly (well, sort of).
Homeownership isn’t for everyone, we all understand that. There are very valid reasons why some people shouldn’t own. That being said, home ownership is for the majority of people.
Studies show that people who own homes are happier and healthier and enjoy a greater feeling of control over their lives. Communities with high homeownership rates are more stable, have less crime, better upkeep and their students have better grades. In America, homeowners pay 80 percent to 90 percent of all federal income taxes and housing accounts for 15 percent of the nation’s entire gross domestic product. For every two homes that sell, one job is created. That’s 2.5 million American jobs in an average year of home sales.
• Jim Haisler is CEO of the Heartland Realtor Organization, a nonprofit trade group based in Crystal Lake serving nearly 900 real estate professionals throughout northern Illinois.