Several decades ago (and earlier) home buyers would wait to purchase a home until they had at least 20% of the purchase price saved up in their bank account, and they would only buy if they were going to stay in the same home and town for many years.  At the time, the percentage of homes that were owner-occupied hovered between 40% and 50% (U.S. Census Bureau).  

Just a few short years ago, home buyers were buying with no down payment at all (or less), even if they planned to stay in the house for only a year or two.  This led to an ever increasing homeownership rate, which peaked at 69.2% of families owning their home in the early 2000's (U.S. Census Bureau).

Why the sudden change of pace?  And what is a buyer to do today?

Many of today's first time buyers are still buying with a very small down payment, and that can be o.k.  Many loan programs are available with a small down payment, such as the FHA loan program which only requires a 3.5% down payment.  The risk here is that a buyer doesn't have too much built-in equity in case they need to sell sooner than they think.  Purchasing a $100,000 house with a 96.5% FHA loan results in a $96,500 loan, which has only been paid down to $95,000 one year later.  With such a small down payment, it can be difficult to re-sell the home in a short time frame without bringing cash to closing.

As becomes evident, the down payment and the length of ownership are quite intertwined.   As shown above, a small down payment with a small length of ownership can be financially difficult.  A small down payment with a longer length of ownership can work just fine.  Conversely, a larger down payment provides security and makes even a small length of ownership feasible.

What may become clear here is that homeownership is not for everyone.  Even if you're making great money when you move to Harrisonburg for a new job, if there is a strong chance you'll be leaving again in 12 months, it may not make sense to buy right away.  But for those with good credit, a down payment of some sort, and a solid job that will keep you employed and in the area for the next 3, 4, 5, 6, 7 years – homeownership may be a very exciting option for you right now.  With low interest rates, lots of homes on the market, and many sellers ready to negotiate, this can be a most opportune time to act.

Owning a home is a passive savings account of sorts, with money accruing as you pay down the principal of your mortgage each month.  Owning a home also gives you the ability to establish yourself and potentially your family in a neighborhood that may be your home for years to come.  Finally, owning your home gives you the ability to invest time, energy and money into your home that will provide a future resale benefit to you – as opposed to when you paint, re-model or otherwise improve a property that you are leasing.

Now being excited about buying and thus owning a home, you might look around and realize that the local real estate market isn't booming right now.  Median prices have dropped a few percentages per year for the last few years.  Is the local market poised for a recovery?  It seems that it might be, with sales volume possibly leveling off in 2011, but no one knows for sure.  Is it wise to invest in real estate when the market, and prices are down?  Many think that it is wise, given that you can fix your housing costs when prices are potentially the lowest that they'll ever be, and when interest rates are potentially the lowest that they'll ever be.  In many ways, your housing costs compared to what you are buying couldn't be much lower than they are right now.

Buying a home isn't for everyone, but excellent housing opportunities abound for those who plan to make the Central Shenandoah Valley their home for the years to come.
 

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Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com