If you’ve been thinking of buying a home, you may want to act sooner rather than later. The cost of mortgages is expected to rise. The Madison-area housing market is also seeing some change — in some neighborhoods properties are going fast. But it’s a misconception that a hot housing market, such as the Madison area, makes it easier to get a mortgage. That has nothing to do with it. Your financing instead depends on the relationship with your lender, and doing your homework together before house-hunting.
“Interest rates really have been at historical lows now for several years,” says Rose Oswald Poels, president and CEO of the Madison-based Wisconsin Bankers Association. “I think that window is going to start to close now.”
Oswald Poels says the Federal Reserve is giving signs that it might raise rates in the second half of this year. “Now, that’s not going to be an immediate increase overnight, but if you are close to deciding or have just decided to buy that first house, I’d strongly encourage you to make your move now, meaning in the next six- or seven-month window of time.”
Already, the National Association of Realtors reports that, according to Freddie Mac (the Federal Home Loan Mortgage Corporation), the average commitment rate for a 30-year, conventional, fixed-rate mortgage rose from 3.67% to 3.71% in February, the first monthly increase since September 2014.
Buyers may find that getting a mortgage is a little different these days. “It’s relative. It depends,” says Jamie Hoppe, mortgage lending sales manager at UW Credit Union. “I don’t know if I want to use the word ‘harder,’ but the regulations and the qualifications are a little bit more stringent now than they were back in the early- to mid-2000s, when there was very little regulation and few rules at all,” he says.
Even today, “You really want to be careful who you talk to,” notes Oswald Poels. “Be sure you’re doing business with a reputable institution that’s been around a while, and you know has a physical presence here in the area. I always encourage people to shop around to more than one institution. In Dane County there are many good institutions to choose from.”
Meanwhile, the housing market in Madison “looks good — if you can find a property,” says Hoppe. ‘It’s really an inventory thing. We’ve seen [instances] where there have been 10 offers or more for a particular property that’s been on the market just a relatively short period of time.”
According to the Association of Realtors, sales of existing homes in the Midwest were up 4.9% compared to a year ago during February, the most recent month for which figures are available. Figures for January were the same as in 2014. Meanwhile, housing prices in the region were up 8.8% from a year ago.
The overall economy complicates matters. The association released a study in March that showed a widening disparity between rent and income growth in metro areas throughout the country. In short, it’s getting harder for renters to become homeowners.
“I think in Wisconsin, and locally as well, we’re seeing that property values have stabilized,” says Hoppe. “I know at least in Madison, we’ve seen properties that took quite a hit — like condominiums — come back pretty strongly. It’s pretty competitive out there when you’re looking for a home now.”
So Hoppe recommends that buyers entering the market be prepared by speaking to a lender, figuring out how much they can afford to borrow for a home and know what mortgage amount they qualify for.
Too often, people leave financing until last, Hoppe says. “That’s very common, actually. There are many people who do just get excited. Of course! It’s your first home. So they go out to all the home shows and open houses and all of that, and forget about talking to a lender. And sometimes they then get disappointed if they are looking at homes that are outside of their price range.”
“Take your time,” adds Hoppe. “Do it methodically. A lot of people look at rates and think they have to run out and buy something now, without really spending the time and energy to research longer-term things: Where you want to live, and what are the property values, and are you buying for investment or are you going to actually live there?”
Take time choosing a lender as well, says Oswald Poels. Financial institutions “are advisers to consumers. And so you really want to develop a close relationship with a lender, so that they get to know you better and you get more comfortable with them as well.”