Why Renters are Becoming Homebuyers in 2015

For sale sign on lawn

2015 is shaping up to be a great year for first-time homebuyers, as the real estate market continues to enjoy a resurgence in new homes built, coupled with exciting new breaks designed to make homeownership more affordable. To get the full scoop, check out these four reasons renters are making the leap to homeownership in 2015.

In fall 2014, Fannie Mae and Freddie Mac each announced a decrease in down payments required on some conventional loans for qualified buyers, reduced from 5% to 3%.

For many buyers in 2015, this is a major development. Previously, the lowest down payment widely available was 3.5% with an FHA loan, but that required carrying mortgage insurance for the life of the loan. Conventional loans, however, allow borrowers to opt out of mortgage insurance premiums after paying off 20% of the total loan, or once a Loan-to-Value (LTV) ratio of 80% has been reached.

That adds up to a double bonus for those seeking to buy a home this year. On the one hand, qualified homebuyers who may previously have been unable to afford 3.5% down with an FHA loan may now find they have enough saved up to meet 3% down on a conventional loan. Making a new home purchase that much more enticing, those same borrowers won’t pay as much in mortgage insurance premiums over the long haul.

Read more on Fannie Mae’s and Freddie Mac’s 3% down programs »

Speaking of mortgage insurance, the Federal Housing Administration (FHA) recently lowered annual mortgage insurance premiums a half a percentage point for loans with a repayment period of longer than 15 years, from 1.35% to 0.85%, which can amount to substantial yearly savings for first-time homebuyers in 2015.

Consider this. On a $250,000 home, that reduction of 50 basis points could save you over $1,000 in mortgage insurance premiums during the first year. When considering the total span of a 30-year mortgage, you could be looking at over $20,000 in savings.

That’s an incredible benefit to homebuyers in 2015, and a major reason why many who previously counted out the possibility of buying a new home this year may have cause to reconsider.

Average 30-year mortgage rates in 2015 started out at a 20-month low of 3.73%, and they’ve remained under 4% ever since. That’s great news for homebuyers prepared to move quickly, who may find they qualify for a mortgage with an attractively low-interest rate. Low rates aren’t guaranteed, however, and can rise at any time without notice.

The U.S. housing market ended 2014 on a high note not seen since 2007 (1.06 million new housing units started), ushering in promise, optimism and plenty of new homes for buyers to choose from in 2015. That means more new homes available in more locations throughout the country, with more personalization options and more floor plans designed to fit a wide range of lifestyles.

With lower down payment options, lower mortgage insurance options and low interest rate mortgages available (at least for now), combined with the best selection of new homes available in years, 2015 may well be a banner year for first-time homebuyers—and a fantastic time for those paying rent to finally make their jump into homeownership.

For more tips on transitioning from renting to homeownership, check out our FREE guide for first-time homebuyers.

You can also find more useful homebuying articles here.