4 Signals It Might be Time to Buy (vs. Rent) Your Home

To rent or to buy:  what used to be a given – that you would buy a home as soon as you could afford to – has become an agonizing conundrum for many a would-be homebuyer, in the face of the housing market’s big bust and super-slow recovery. Low prices seem to create a wide-open window of opportunity, but they also create the concern that prices will keep falling after closing.  And that Catch-22 has hundreds of thousands of buyers-to-be stuck on the fence.

Fortunately, there are handful of life, mortgage and local market signals which indicate that the time *might* be right to hop – scratch that – leap off the fence and into homeownership:

Mortgage rates are going up.  Home prices have been low for the last several years, and in fact are currently looking like they’re heading back down to the same levels they were at the depths of the real estate recession. During this same time frame, interest rates have also been low – this one-two punch has created record-high affordability for the last four years running, causing buyers to believe that this window of opportunity won’t be closing anytime soon.

While prices don’t look like they’ll be skyrocketing anytime soon, interest rates are another story. Rates have been on a rollercoaster over the past few months, and with inflation and Fed rates set to spike later this year, today’s low interest rates might be as good as they’re going to get for a long time to come.  And I mean a very long time – in the next few years, governmental intervention in the mortgage markets is likely to wind down, and that means higher mortgage interest rates are not only inevitable, they’ll probably be here for a long, long time. 

Mortgage rates on the rise are one signal that now might be the peak of home affordability, and the peak of the opportunity to buy.

Rents are going up.  Rental rates in many areas are also on the rise – in fact, the foreclosure crisis has acted created additional demand on many markets’ rental housing inventory in several different ways. First, former homeowners who lost homes to foreclosure now need to rent; as well, buyers in foreclosure hot spots have been hesitant to buy, many electing to stay renters far beyond when they would have otherwise. On top of all that, super-tight lending guidelines have stopped even some who would like to buy homes from doing so.  As a result, rental homes are in high demand – and rents are rising.

Rising rents at a time when the prices of homes for sale are low and, in some places, falling?  One more signal that now might just be the time to buy. (Of course, where foreclosures are high, the chances of continued depreciation are, too – to offset this risk, have a long-term plan, to minimize the possibility that you’ll owe more than your home is worth when you need to sell.  Read on for more on how to plan for the long term and minimize your homebuying risk.)

Your income and career are stable for the foreseeable future.  The smartest homebuyers look to their lives, not just the market, for signals about when the time is right to buy. Homebuying is a long, long-term endeavor these days. The goal is to be able to commit to staying in the same place, geographically-speaking, for 7 to 10 years before you buy (more in a foreclosure-riddled market, less in an area that has been more recession-resistant). Most lenders will require that you’ve been at your job – or in the same general field of work – for at least two years before you buy. But that’s the bare minimum – beyond that, you don’t want to be barely beginning a career in which you think you may need to move sooner than that, nor do you want to buy when you’re advanced in your career, but in an industry which is dying or downsizing the workforce in your region (unless you have a strong Plan B).

When you get to the spot in your career where you can realistically project a stable income 7 to 10 years out, life might be giving you a green light to move forward on your homebuying dreams.

You can reasonably predict the home you’ll need in the years to come.  Since successful homeownership requires that you be ready to be in the place for a good number of years, best practice is not just to buy a home with the space and number of rooms you need right now – rather, you should aim to buy the home you’ll need 5, 7 or even 10 years down the road (to the best of your ability to predict, of course). You might be a newlywed with no kids now, but you plan to have them in a few years. Or maybe you’re a newly minted empty nester right now, but can project that you’ll want to retire - and might not want to climb two flights of stairs to get to and from your bedroom - 10 years down the road. Before you buy, you should be in a position to buy the home that meets your future needs – not just your current ones; and that requires that you have a reasonable idea of your life vision and plan for the future.

If you’re able to predict – and afford, at today’s prices – a home with the space, amenity and geographic location you’ll need 7 to 10 years from now, you might be in a good phase of life to get off the rent vs. buy fence.

With that said. . . buying a home is a massive decision and includes multiple, long-term financial and lifestyle obligations, so if one or more of these signals are present for you, that doesn’t mean you have the green light to run out and buy a home tomorrow – rather, it’s a good sign you should begin down that path, if you’re so inclined. You’ll still need to do the work to make sure your personal finances and holistic life picture are also in alignment before you buy, as well of the work it takes to ensure that your real estate and mortgage decisions are sustainable and smart, over the long-term.

It’s not overkill to check in with a mortgage pro, a tax pro, a local real estate broker or agent and a financial planner to make sure all your ducks – not just one - are in a row before you make your move.

SHORT SALE 

Dear Homeowner

If it appears that the only available option to you is to sell your property as a short sale, here are things you should know:

Short sale is a type of pre-foreclosure sale in which the lender allows the property securing a mortgage or deed of trust loan to be sold for less than the full amount due, and accepts the proceeds from the sale as payment in full.

Short Sale Approval

Most lenders will approve a short sale only as a last resort to foreclosure because of the following:

• The borrower is insolvent
• The proposed purchase price is more than the lender can sell the property after foreclosing on the loan
• The market value of the property is below the loan balance due to local and national economic conditions
• The property was refinanced at a higher value based on an inflated property appraisal report
• The property is in such a physical condition that it is not financially feasible for the lender to put it into a marketable condition.

Hardship

Regardless of who benefits from a short sale, most lenders have a very strict hardship test that the financially distressed homeowner must meet to qualify for relief by way of a lender-approved short sale.

Hardship could be one or a combination of the following:

• Unemployment
• Reduced income
• Divorce or separation
• Too much debt
• Death of spouse
• Mortgage payment increases (example: negative amortization)
• Business failure
• Job transfer
• Illness and large medical bills
• Damage to property
• Military service
• Incarceration

Your role

• You are not responsible for selling expenses. The Lender pays the realtors to list and sell the property.
• You will NOT get any sales proceeds from the sale
• Set your ego aside about how much your property is worth after what you paid for it, improvements you made, etc.
• Get all the required documents as soon as possible so that your realtor can begin communicating with the lender and marketing your property
• Price the property aggressively to attract the largest pool of buyers so that you can get sell it quickly.
• Remember, that time is of the essence. You only have so much time to try to sell your property as a short sale. So you must maintain the property so that it is marketable
• You can accept an offer and ratify the contract and send this off to the lender; but if another offer comes in that looks better than what was accepted previously, the lender can override the your decision, and accept the offer that is financially better for the lender.
• Escrow is not necessarily opened until the lender accepts the offer ---- and that's when the timeline of the contract begins
• Always encourage and entertain back up offers. Oftentimes, buyers get tired of waiting for the short sale to be approved, and they back out of the agreement

Setting expectations

Short sale is anything but a "short" process

PATIENCE!

• Selling a short sale property is a long tedious process
• Getting a Loan Negotiator assigned to the case will entail many phone calls and other means of communicating
• This is a more involved process than a regular sale
• List price must be very aggressive in order to attract the biggest pool of buyers
• The quicker you get an offer, the better you are protected from foreclosure
• Offers tend to be lower than list price. Don't take it personally
• When an offer is submitted, you can accept...but Lender makes the final decision

PATIENCE!

• Lender may take 45 days or longer to respond to an offer --- accept, reject or counteroffer
• Lender may override the Seller's choice

PATIENCE! 

SAMPLE foreclosure timeline

Here's a look at a timeline from late payment to foreclosure. Timelines vary, depending on lender, location, situation.  There is always the possibility of postponing foreclosure, such as when the property owner lists the property for sale as a short sale, receives and offer or offers and forwards the offer(s) subject to lender approval.

• DAY 1    The borrower misses the payment.
• DAY 16-30   A late charge is assessed. The mortgage servicer contacts borrower to find out why the payment is late. File is sent to the Collection Department.
• DAY 45-60  The servicer sends a "demand" or "breach" letter to the borrower who has 30 days to resolve the situation by paying the delinquent amount.
• DAY 90   Notice of Default.  Foreclosure proceedings start with a Notice of Default (NOD). The document is recorded at the request of the lender by the trustee and is recorded in the county in which the property is located. In California, the borrower and junior lien holders are given proper notification and the borrower has 90 days to bring their account current. This period is referred to as the Reinstatement Period.
• DAY 180  Notice of Trustee Sale.   If the borrower does not reinstate their account within the 90 day period, the lender will authorize and instruct the Trustee to record the Notice of Trustee Sale (NOS).
• DAY 196   5 Business Days Before the Sale Date.   Right to Reinstate expires.
• DAY 201 After 21 days of the recording of the Notice of Trustee Sale, a foreclosure sale can take place at public auction. The property may be sold to a third party bidder or revert back to the lender for a specified amount.