VA Home Loans: 3 Reasons it is still a Good Time to Buy a Home with a VA Loan
The question is as old as home buying itself: Is it a good time to buy a home? It is natural for home shoppers to wonder if homeownership is the right move long-term. Plenty of people have purchased homes just to watch them drop in value. And with home values rising recently, are homes still a good value? Here are three reasons why buying a home now, especially using a VA home loan, has a better-than-average chance of paying off tremendously for today’s home shoppers.
- VA Loan Rates near All-time Lows
Today’s first time home buyers have access to incredibly low loan rates. But some younger buyers often don’t realize exactly how low they are. In the year 2000, mortgage rates were about double today’s levels, according to Freddie Mac, a government organization that gathers average interest rate data. The 30-year fixed rate was around 8% back then. Compare that to today’s low VA rates that are in the high 3% to low 4% range.
Buying power increases about 10% with each 1% reduction in rate. This fact means today’s homebuyer can buy 40% more home at current rates, than if rates were 4% higher.
Lower rates mean the advantage of buying bigger, more suitable homes. First time home buyers are often just starting out with plans of family in the future. In the past, they had to settle for a small home or condo that would meet their needs for only a few years. Home buyers today have a better chance of getting into a home that will meet their needs for years to come, thanks to low mortgage rates.
- Home Prices are Still More Affordable than Average
Veterans looking for their first home often wonder if homes are still a good value in today’s market. Many areas of the country have seen high appreciation since the housing bust, so will homes continue to increase in value?
First of all, despite recent appreciation, homes are still priced low. According to the Federal Housing Finance Agency, home prices in May 2014 (the most recent data available) were roughly the same as they were in July 2005 – almost nine years earlier. Meanwhile, just about every other consumer item has gone up in price. Things like cars, gasoline, milk and beef have all become more expensive. Yet, home buyers today can buy a home at 2005 prices.
Another positive indicator is the National Association of Realtors Housing Affordability Index, a quarterly report that compares home prices to incomes. The index uses the number 100 when a family earning an average income can buy an average-priced home. The index showed a “score” of 159 for the first quarter of 2014, showing homes are over one and one half times as affordable as average. Compare today’s index level to June 1982 when it stood at 65, and more recently July 2006 when it was 101.
Affordability will only decrease as home prices catch up with average incomes. It is one of the best and safest times in history to buy a home and today’s home buyer has a much better chance of continued home price growth compared to previous generations.
- VA Loans make Home Buying an even Safer Bet than Renting
The average home buyer will do well in today’s market. But veterans who are eligible for the VA home loan have an even greater advantage. The VA home loan makes it easier and more affordable to buy because there’s no down payment required and rates are lower than with standard conventional mortgages.
Lower cost means lower risk for the home buyer. Many VA buyers purchase a home for less than their rent payment each month. And with 30-year fixed VA rates, the principal and interest payment never changes. Rent payments can go up every year.
In fact, average rents are up over 300% since 1981 according to the Bureau of Labor and Statistics. Rising rents will continue to be a major incentive to own a home and lock in a monthly housing payment.
Home buyers today have a golden opportunity to own a better home than they thought possible. And that’s especially true for eligible veterans. Check today’s VA rates and qualification standards. You could be in your own home before you thought it was possible.