2016 is the Time to Buy a Home

Making the decision to buy a house always requires many considerations. Is it time to buy a home now? First, you have to pinpoint the most convenient location to live and assess the affordability of housing. In most cases, you need to find out how much house you can afford and the cost of borrowing, given your financial profile.

2015 presented opportunities and challenges for homebuyers. While interest rates for some borrowers were at historic lows, hovering around 4% and below, housing values increased, decreasing the number of affordable homes available.

In spite of last year’s challenges, market conditions, lending rules and interest rates probably mean that you will be able to afford a home in 2016 if you plan to make your purchase early in the year.

When it comes to housing, lenders consider a buyer’s debt-to-income ratio. Affordability means that a buyer uses no more than 28% of his income, or his total debt, to cover his mortgage and other non-housing debts. By the end of 2015, fewer than 63% of listed homes fell into the affordable category, which accounted for fewer home sales in spite of rock-bottom interest rates. Stalled wage growth further compounded the issue, and that’s not expected to change in 2016. Housing prices are expected to level off, and more homeowners are expected to sell due to the equity increases they’ve seen in the past year. With more houses available for sale, buyers can expect less competition when they find deals.

People who bought homes in 2015 and met certain financial criteria, such as having good credit and 10 to 20% cash to put down, enjoyed historically low interest rates. Even though the Federal Reserve is expected to increase interest rates in 2016, buyers can still purchase homes at affordable rates if they do it early in the year. Prospective borrowers in rural and underserved areas can still apply for U.S. Department of Agriculture-insured loans. USDA loans offer buyers in certain areas no-money-down loans. This is can be a win-win situation for some homebuyers, because more homes in rural areas fall into the affordable category than in urban areas.