A combination of low housing inventory, rising interest rates and changes in tax laws could make shopping for a house more difficult this year. Fifth Third Mortgage has tips to help prospective home buyers navigate what’s new, and how to be ready to purchase with confidence.
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“We’re seeing a lot of millennials looking for their first home this year,” said Ed Robinson, head of Fifth Third’s mortgage business. “Many of them are worried they won’t be able to get what they want. We want to help prepare them for their house hunt so they’re ready to make an offer when they find the right one.”
Robinson shared these five ideas to consider:
Be ready to make an offer: With available housing hovering at record-low levels, prospective buyers will want to consider getting a pre-approved loan when they are looking at houses. “More sellers are staying put, and competition is fierce,” Robinson said. Mortgage pre-approval differs from prequalification. Pre-approval shows that you have your bank’s backing, while prequalification shows an amount you qualify to borrow.
Look for programs that will help you: There are more than 200 federal, state and local programs to assist consumers to make their down payments or pay their mortgage closing costs. Some programs are only for first-time homebuyers, while others benefit specific groups, like veterans. Fifth Third’s Down Payment Assistance Program offers 3 percent of the purchase price in down payment assistance, up to $3,600, for low-income borrowers or those purchasing in a designated low-income area and financed through Fifth Third.* Fifth Third’s program also can be combined with state and local programs to help consumers take advantage of free money for their down payments. “Fifth Third’s Down Payment Assistance Program is a great way for people who can afford a house payment but can’t get over that hump of the down payment,” Robinson said.
Fifth Third has awarded more than $3 million in down-payment assistance since the program’s launch two years ago. The average assistance is $2,700.
Know what rising interest rates mean: Mortgage rates have reached their highest levels since 2011, a signal that very inexpensive loans won’t continue. Rates on a 30-year, fixed-rate mortgage were under 4 percent in the summer of 2017. Now the rates hover around 4.6 percent. “When you are at a lower income level, a bump like we’re seeing is going to affect you,” Robinson said. “It might mean you no longer can afford that house.”
Understand what you can afford: Don’t look only at what you can borrow but what works for your monthly payments, Robinson advised. “Debt limits have increased, but that doesn’t mean you want to increase the cost of the house,” he said. “You never want to buy more than you can afford.” Fannie Mae, for example, has begun purchasing loans with borrowers who have a debt to income ratio of up to 50 percent instead of the previous 45 percent limit. “That means buyers would qualify for a bigger loan, but that doesn’t always mean buyers should borrow a larger amount,” Robinson said. Look at costs beyond the mortgage, taxes and insurance to heating, cooling and maintenance.
Understand what the tax law changes mean: Some of the changes in the tax law could affect buyers’ purchasing power. The cap on interest deduction is now $750,000 of mortgage debt, down from $1 million previously. The deduction for property tax deductions for state and local taxes is now capped at $10,000.
*To be eligible for the down payment assistance of 3 percent, up to $3,600, the property must be in one of the following eligible states: MI, IN, IL, KY, TN, OH, WV, NC, GA, FL, and either be located in a Low Income Census Tract or borrower must meet the low income limit threshold based on the qualifying income per FFIEC website. Down payment assistance may be taxable as income and reported to the IRS. Consult your tax advisor. Not available with all products.
Loans subject to credit review and approval. Prices and programs subject to change without notice. Fifth Third Mortgage Company, 5001 Kingsley Drive, Cincinnati, Ohio 45227, an Illinois Residential Mortgage Licensee. Fifth Third Mortgage Company d/b/a Fifth Third Mortgage Company Incorporated and licensed by the New Hampshire Banking Department. Fifth Third Mortgage is the trade name used by Fifth Third Mortgage Company (NMLS #134100) and Fifth Third Mortgage-MI, LLC (NMLS #447141). Fifth Third Bank, Member FDIC.
About Fifth Third
Fifth Third Bancorp is a diversified financial services company headquartered in Cincinnati, Ohio. As of March 31, 2018, the Company had $142 billion in assets and operated 1,153 full-service Banking Centers and 2,459 ATMs with Fifth Third branding in Ohio, Kentucky, Indiana, Michigan, Illinois, Florida, Tennessee, West Virginia, Georgia and North Carolina. In total, Fifth Third provides its customers with access to more than 54,000 fee-free ATMs across the United States. Fifth Third operates four main businesses: Commercial Banking, Branch Banking, Consumer Lending and Wealth & Asset Management. Fifth Third is among the largest money managers in the Midwest and, as of March 31, 2018, had $363 billion in assets under care, of which it managed $37 billion for individuals, corporations and not-for-profit organizations through its Trust and Registered Investment Advisory businesses. Investor information and press releases can be viewed at www.53.com. Fifth Third’s common stock is traded on the Nasdaq® Global Select Market under the symbol “FITB.” Fifth Third Bank was established in 1858. Member FDIC.