The year 2020 witnessed incredible declines in mortgage rates across the board. At one point in December, the rate for a 30-year conventional fixed-rate loan dipped to 2.67%.
Midway into January 2021, rates have risen ever so slightly. The rate in California was just below 2.9%, which is still a record low.
As talks of further economic stimulus amid the testy political climate make the rounds, traders and observers are expecting rates to steadily increase in the coming months.
Thus, the question for many buyers lingers: “Is it a good idea to take advantage of the current low rates and buy a home in California?”
Consider the following before making a decision:
Overall financial health is still your compass
Low rates notwithstanding, not everyone will have the confidence and resources to buy a home. A number of factors – mostly financial – have to align first:
- Current income is on the uptrend and financial security is present
- The level of risk a buyer is willing to take, given the economic climate
- Homeownership will help achieve career and personal goals
- Owning a home, as opposed to renting, is needed now for a growing family
Any one of the above – job security, thorough knowledge of risks, living situation – may mean different things to different people. Each aspiring homeowner should gain a sound understanding of their unique situation.
Buyers should be grounded in reality and start crunching the numbers. How much money can be set aside for a down payment and monthly mortgage costs? What is the opportunity cost towards owning a home?
Take into account the full cost of homeownership
If you can shoulder all the costs that homeownership entails, then this puts you in the ideal position to benefit from low interest rates.
Home inspections, insurance, repairs, maintenance, and property taxes add to the overall cost of buying and running a house. And some homebuyers may not fully grasp this reality. Even if interest rates are favorable, homeownership can end up costing more than a buyer bargained for.
As a result, owning a home that costs more than expected can prevent people from addressing other priorities in life, whether it’s healthcare, children’s education, or retirement.
However, if you can manage to pay for closing costs, mortgage, and taxes — all while still having enough savings for your other goals — then it’s best to take advantage of current rates.
The competition will be stiff
While low mortgage rates are currently the norm, low inventory is pushing up home prices. And with fewer houses in the market, bidding wars are likely to erupt as home buyers jostle to outmaneuver competitors.
If you can make a strong offer and outbid other buyers with the help of a trusted and reliable agent, then you will have a fairly good chance of making the most out of low interest rates.
The tight inventory and strong competition are ideal for many sellers, but not so much for those looking to buy a house. How can buyers prepare themselves for such a scenario?
It’s best to sit with your agent to craft a strategy that will give you the edge over other buyers. Here are a few ideas:
Present an unconditional offer to the seller. Such a strategy could prove advantageous if other buyers are imposing several conditions before they purchase a house. Sellers in this situation will most likely be drawn to the buyer that presents fewer impediments to the transaction.
Have your agent establish a cordial relationship with the listing agent. The world of local real estate is often tight. Agents network with each other to expand listings, or move shared goals forward. It’s best for your agent to build on connections or quickly establish a cordial relationship with the seller’s agent, who might prefer working with a particular buyer if the agent is easier to deal with.
Make a large deposit.This goes back to the previous point above on financial health. If buyers can put themselves in above average financial standing, they can make relatively a larger deposit, which signals to the seller that they are serious about buying the house.
Patience pays off in the long run
Ultimately, if buyers are rushing to buy a house solely because of favorable rates, they may be setting themselves up for disappointment. Buying a house is a major life decision and its full financial effect should not be underestimated.
And even if financial capacity is assured, low inventory will significantly restrict available home options. As a result, many of these houses will likely fall short of buyers’ specific criteria and requirements. It’s crucial to avoid settling for less.
To learn more about buying a home in Dublin, CA as well as the nearby communities of East Dublin, Dublin Ranch, and Positano in San Francisco’s East Bay, contact Manel Sousou and her team. Their proven track record for success and 32 years of real estate experience mean that their advice and the consultation that you receive can make a tremendous difference in your home buying journey.