Lawnmowers and “For Sale” signs in the Denver metro area are sure signs of spring leading into summer. Home buyers and sellers are ready for this season – while inventory has increased over years past, Denver is still the most competitive housing market in the nation, according to a study by LendingTree.
The buying landscape has changed in 2019, due in part to recent changes to the tax code, interest rate increases, and a new set of buyers ready to invest in a home. According to Realtor.com, the Millennial generation will make up the largest group of home buyers in 2019: they are expected to make up 45% of all mortgages, compared to GenX (37%) and Boomers (17%).
In this more buyer-friendly market, house-hunters should be aware of three myths for 2019:
1.MYTH: We’re heading into another housing bubble. With the housing market continuing to be strong, many people worry that we’re in a housing bubble. Not true, according to Denver-based Your Castle Real Estate. The company reports that compared to the explosive growth period between 2002 and 2006, there are fewer new homes being built, less inventory and more cumulative job growth. And, we’re moving into a buyer’s market, which means there are fewer bidding wars to inflate home prices, average prices are not increasing as quickly.
2.MYTH: With interest rates increasing, it’s still more affordable to rent.
Buying is still better than renting as rents continue to rise in Colorado. Even with mortgage rates increasing, if buyers can stay in a home for four to five years, the overall value is typically higher compared to a rental, simply due to the equity being built in the home. And interest rates, while increasing slightly, are still low, hovering between 4-5%.
3.MYTH: Getting a mortgage is difficult, especially because I don’t have money for a down payment.
Recent regulation has made it easier for lenders to help buyers – especially first-time buyers – secure a mortgage. For example, many credit unions offer several loan options for those with a limited amount of money for a down payment but who have a high credit score, usually above 700. One option is an 80/17 program, where buyers borrow 97% of the cost of the home. Three percent is made up of a down payment from the buyer, and 80% is a standard, first mortgage. The remaining 17% comes from a home equity line of credit or HELOC loan. The seller still sees a 20% down payment, and buyers will benefit by already having an equity line of credit established for additional use down the road, for remodeling, updating or other expenses.
A second option is called the Home Ready Program, which requires only a 3% down payment. Mortgage insurance with this option is somewhat limited, but it allows for a lower interest rate increase from the base rate.
Another route many first-time buyers can consider is taking a withdrawal from an established retirement fund. Many funds allow a withdrawal without penalty for the purpose of paying a down payment on a first home.
As the flowers are blooming and the chill in the air disappears, it’s worth taking a few minutes to talk to a mortgage professional at your credit union or bank to find a perfect mortgage for your needs before you find a new home