While a competitive market and low inventory may deter some Coloradans from purchasing a home, low mortgage rates and high-priced rentals are helping to turn wavering buyers into new homeowners. The pressure is on, but is now the right time to buy? Here is what you need to know:
High Cost of Renting in Colorado
The cost of renting in Colorado has been quickly rising over the past few years. In 2014, the Colorado Division of Housing found the average rent in Colorado was $1026, a staggering 8 percent increase in just one year’s time. Rental costs are especially high in the Fort Collins area which saw 17.2 percent increase in that same span of time. In 2014, the cost of rental in Fort Collins was $1216, nearly $150 higher than rent in Denver. Vacancy rates in the Fort Collins area are also at an all time low, making it even more difficult to find a rental property. This shortage has also caused issues for those seeking low income housing as well as problems for high-income renters who may only have access to lower quality units.
Low Mortgage Rates
Many potential homebuyers are being swayed by low mortgage rates. According to a recent survey conducted by Chase, 32% of respondents wanted to buy soon to take advantage of low rates. In April, the average 30-year fixed-rate mortgage fell to just 3.65 percent, edging closer to the historic low rate reached in November 2012. The rates for 15-year mortgages are also on the decline, falling to 2.92 percent. While some nervous buyers favor a wait-and-see approach, many potential new homeowners fear rising rates with good cause. Fed officials are forecasting a spike in mortgage rates later this year.
Locking in Your Rate
Those looking to take advantage of low rates should meet with the lender to discuss their policy on locking in the interest rate. Some might have one policy for adjustable rate loans, and another for fixed rates. With respect to fixed rates, usually the farther away from closing that you lock in, the higher the interest rate.
If you seek a lock-in, make sure it will cover you for the duration of the escrow. Inquire if your loan will drop if rates drop. Each lender has a different policy. Also, don’t automatically assume that if you don’t close your loan within the specified time frame, and rates drop that yours will drop. You might find the lender will give you the higher of the two—the rate that you had, or the one currently in effect.
Is this the Best Time to Purchase a Home?
If you can afford the downpayment and you intend to stay in the home for a significant length of time, then now is a great time to buy. While you can never predict rate fluctuations precisely, we do know they will most like rise mid-year. Taking advantage of low rates is an excellent way to save some money, but only if you are well-prepared to buy already. Low mortgage rates are not a cure-all; if you can’t get loan pre-qualification or have job instability, then don’t let the pressure to buy convince you.
Purchasing a home is one of the biggest decisions you will make in your life. While you should never jump into it blindly, you should also take economic conditions into account. If you are in good shape professionally and financially, then it probably makes sense to take the plunge.