Annual rents have been increasing on average 3% – 4% in most areas of California. As you can see below, just a 4% increase in annual rent can drive a $1,500 monthly rent up to $1,974 in just 8 years, an increase of $474, which is a 32% increase in overall rent.<\/strong><\/p>\n Compare this to buying a home and obtaining a low fixed rate and monthly payment that will not change. This is why it is important that buyers understand that home ownership is also a hedge against inflation and rising rents.<\/strong><\/p>\n When you factor in the additional benefits of tax deductions and appreciation that come with home ownership, these are just some of the reasons why there has been a influx of new first time buyers looking to purchase a home in 2015.<\/p>\n The Impact of Rates on Buyer Purchasing Power<\/span><\/strong><\/span><\/p>\n Changing mortgage rates do more to influence home affordability than changing home prices. This chart below shows the “impact of rates on buyer purchasing power or affordability<\/em>“<\/strong>. As you can see below, when rates increase by just .5%, a buyer loses 5% in purchasing power or affordability. Or vice versa, when rates decrease by .5%, a buyer gains 5% in purchasing power.<\/strong><\/p>\n For example, see how the payment at the 3.75% rate on a $400k loan, is roughly the same payment as the 4.25% loan at $380k, a gain of 5% in purchasing power for a buyer.<\/p>\n As rates have been trending higher in 2015, and coupled with rising home prices in most areas, the overall cost to purchase a home has been increasing.<\/p>\n Market experts are expecting rates to increase over 4.5% in the next 12 months, and home prices to increase another 5%-6% in the next 12 months, so the payment for a home purchase will probably be higher in 12 months than it is today.<\/p>\n The conventional 3% down mortgage is the best mortgage option available for first time buyers in today’s market. This program is helping many first time buyers obtain home ownership, who may have not been able to otherwise. It is also allowing buyers to purchase a home with a low down payment and a low fixed rate.<\/p>\n It also allows ALL of the down payment to be gifted<\/strong>, so this means buyers can reach out for a gift instead of having to wait and save up the full 3% down payment.<\/p>\n There is also an option to eliminate the monthly mortgage insurance “PMI” from the mortgage payment<\/strong>, so this is helping buyers obtain an even lower monthly payment.<\/p>\n Let’s compare the conventional 3% down mortgage with No PMI to other low down payment options to purchase a home.<\/p>\n On this $400k home purchase example, we will compare the savings on a conventional 3% down loan, with and without monthly mortgage insurance, and a FHA 3.5% down loan with monthly mortgage insurance.<\/p>\n To calculate property taxes, we will also use 1.2% of the purchase price, so $400 a month, and $75 a month for a homeowner\u2019s insurance policy, so we can calculate what the total monthly\u00a0PITI (principal and interest, taxes and insurance)<\/strong> payment is for each scenario.<\/p>\n Option #1.<\/strong><\/span>\u00a0The figures on the first column, is a conventional 3% down loan with No PMI. The rate on a conventional 30 year fixed with No PMI is 4.375%.\u00a0The total monthly PITI payment is $2,412.<\/strong><\/p>\n Option #2<\/strong>.<\/strong>\u00a0<\/span>The figures on the second column, is a conventional 3% down loan with PMI. The rate on a conventional 30 year fixed with monthly mortgage insurance is lower at 3.99%,\u00a0but there is also monthly mortgage insurance of $354.<\/strong>\u00a0The total monthly PITI payment is $2,680.<\/strong><\/p>\n Option #3<\/strong>.<\/span>\u00a0The figures on the\u00a0third column, is a FHA 3.5% down loan with monthly mortgage insurance. The rate on a FHA 30 year fixed is 4%,\u00a0but there is also monthly FHA mortgage insurance of $278.<\/strong>\u00a0There is also a FHA funding fee of 1.75% due on all FHA loans, this fee of $6,755 was added to the loan amount in this example.\u00a0The total FHA monthly PITI payment is $2,628.<\/strong><\/p>\n As you can below, option #1 with the conventional loan and No PMI will help you obtain the lowest monthly payment and save you the most money.\u00a0It will save you $269 a month over the conventional loan with PMI, and saves $216 over the FHA loan<\/strong>.<\/p>\n<\/p>\n
<\/p>\n<\/div>\n
<\/p>\n<\/div>\n
<\/p>\n
<\/p>\n
![\"\"](\"http:\/\/www.michaeladeery.com\/newsletter\/images\/sign.jpg\")
<\/div>\n