Last year was an interesting one for homebuyers. A year that started with historically low rates and high home prices favoring sellers ended with mortgage rates reaching an eight-year high, stalled housing price increases, and a budding buyer’s market. Because of this, lenders and realtors say 2019 could bring big opportunities for homebuyers.
Here are some of the housing market highlights you might have missed in 2018:
- The Federal Reserve raised rates several times, beginning in March 2018. Fed rate hikes boost the economy and workforce and, as a benefit to sellers, could encourage housing prices to increase.
- The U.S. House of Representatives voted in favor of the Dodd-Frank rollback in May 2018, relaxing regulations on small and many large banks and making it easier for homebuyers with extra debt to get a mortgage.
- Moving into summer, buying still beat renting, with the potential for homeownership to pay off in 4 to 5 years.
- Mortgage rates dropped in the summer before hitting a seven-year high in the fall, curbing home price growth and reducing competition for buyers who stayed in the market.
- New conforming loan limits for 2019 were announced in late 2018, giving homebuyers the chance to purchase 7-percent more house and afford typically pricey areas.
As for the year ahead, here’s what homebuyers and owners could see in 2019:
- Consistent economic growth.
- Modest housing price increases.
- More housing inventory and some new construction.
- Rising rates, up to 5.8 percent, that could also cause rents to increase.
- Strong desire for homeownership among younger Gen-Z/millennial buyers.
Rising rates and home prices might seem problematic at face value. But lenders and realtors are feeling confident about the six-month outlook of the housing market. More housing inventory and over 75 percent of homes projected to sell below asking price point toward a buyer’s market in 2019.
Learning how to leverage your mortgage in the coming year could also make it cheaper. For homebuyers, using one or more of these tips may make it possible to buy a house at an affordable price. For homeowners, these tips could help you lower your monthly payment and get a better grip on your budget.
How to make managing a mortgage easier than they say it is
If you do anything different in 2019, try getting more out of your mortgage:
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1. Include your mortgage in your financial planning.
There are cases where your mortgage can factor into your other financial plans, making them more or less attainable. For example, Charlie Donaldson, MBA, College Funding Advisor at College Bound Coaching, says, “The amount of your home equity can count against you when attempting to get financial aid to pay for your child’s college education, potentially costing you tens of thousands of dollars each year your child is in college.”
Do this: Meet with your financial advisor to review your assets and equity when planning for a large goal, like college. Saving up money but having it in the wrong place could do more harm than good.
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2. Start saving for a down payment.
If you aren’t used to saving, automating should make it easier, Naomi Grossman, Project Manager at Profile Investment Services, Ltd., says. “Each month, as you put the money aside, visualize another brick in your new home as you get closer to your goal.”
Do this: Get prequalified and ask your loan officer about your low- and no-down-payment mortgage program options. Many prequalified homebuyers find their down payment amount much lower than the 20 percent they expected. Then automate your savings so a certain amount is put aside into an account whenever you receive your salary.
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3. Or, make extra mortgage payments.
Paying ahead on a mortgage is not something many people do in a lifetime, but it’s possible, says Grossman, when you start off small.* Change your financial habits gradually, she says, because if you take on too much at once, you may feel intimidated.
Do this: Choose one small thing you can do, like automating a small amount to use for an extra mortgage payment within the year. Once you’ve nailed this habit, increase that amount to two or even three extra payments.
*As a note, this is also a good time to consult with your loan officer about the pros and cons of paying off your mortgage early. Financial experts remain divided on this topic since potential mortgage payoff benefits are related to personal circumstances, including existing debt.
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4. Refinance and lower your monthly payments.
Refinancing your mortgage simply means you’ll be replacing your current mortgage with a new home loan. You’ll get a new rate, new terms and conditions, new closing costs, and the possibility to choose a new lender. Refinancing can be a good idea when mortgage rates are low (as we saw at times in the past year) or when and if your home has seen a big jump in its market value.**
Do this: Set up a quick meeting with your loan officer to see if you could benefit from a refinance to reduce your monthly mortgage payments. You could also refinance to consolidate your credit card, loan, and other debt to lower your interest rates; to finance home renovations or extensions by using the equity on your existing home; or to get a new home loan with better features, like an offset account or redraw facility.
It’s like that dream about flying, but better. Use our free LoanFly app to fly into your new house in as few as 10 days.***
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5. Don’t stretch your mortgage budget too far.
It’s easy to get carried away planning for the year ahead. But take a moment to put your goals and your numbers in perspective, especially when budgeting your monthly mortgage. This can apply to both refinancing and buying a house. “Standard guidelines call for keeping housing expenses below 35 percent of total income,” Kevin Gallegos, consumer finance expert at Freedom Debt Relief, says. “Some experts are revising that number down to 28 percent.”
Do this: Leave breathing room in your budget to buy a home or help pay for a mortgage, even if something unplanned occurs. Also, check in with your loan officer to find out their recommendation for how much of your total income should be spent on housing.
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6. Understand your private mortgage insurance (PMI).
If the PMI associated with your monthly mortgage has always confused you, this could be your year to find out. “Mortgages with less than 20 percent equity (which means a 20-percent down payment for those purchasing a home) require PMI in case the owner defaults on the loan,” Gallegos explains. “This is added to the monthly payment.”
Do this: Get in contact with your lender to discuss the remaining balance on your mortgage — and when your PMI, if you have it, can be dropped. If you’re buying, chat with your loan officer about financing your upfront mortgage insurance into a low-down-payment loan, like an FHA, or see if you’re eligible for loans without mortgage insurance, like a VA loan.
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7. Pay attention to your credit.
Start by requesting the free annual credit report you’re entitled to at AnnualCreditReport.com. “For each credit account you have, the report shows creditors’ names, the amount owed, the highest balance owed, available credit, whether the account is open or closed (and who closed it), the number of times a payment was past due, and whether the account is in default,” Freddie Huynh, a lead data scientist at FICO (Fair Isaac) for 18 years who is now Vice President of Credit Risk Analytics at Freedom Financial Network, explains.
Do this: Understand what your number is before buying a house or refinancing a mortgage. A higher credit score indicates better credit and can help you get a better mortgage interest rate. If you’re in the process of improving your credit, ask your loan officer about mortgage programs with flexible credit requirements, like FHA and VA loans that may only require a FICO of 580.
Need help with one or more of these mortgage management tips? We’re in your corner. Download our free LoanFly app to get in touch with your loan officer from anywhere — and find out your credit score after you prequalify.
**While refinancing could make a significant difference in the amount you pay each month, there are other costs you should consider. Plus, your finance charges may be higher over the life of the loan.
***10-day close not typical. Not all loans will close in this timeframe.
For educational purposes only. Please contact your qualified professional for specific guidance.
Sources are deemed reliable but not guaranteed.