If you’re considering buying a home, but want to wait until you save up more for your down payment, you’re probably going to cost yourself quite a bit of money.
How much money?
Yikes! That’s a lot of money.
Yikes is right! We caught up with our awesome lender partners so we could get a breakdown of the numbers and two actual examples to share with you. Here’s the scoop.
Rates are currently pretty low at about 4.5%, but they’re projected to increase. A 0.5% change in interest is approximately equal to a 5% change in the list price.
Right now a $300,000 mortgage with a 4.5% interest rate for a 30-year term will have a $1,520.06 [principal & interest] monthly payment. If the mortgage rate goes up 0.5%, it would affect the payment the same as if the price of the home had gone up 5%. The difference in payments for the full term of the loan would be $32,547. To make it worse, the price of homes will also probably increase (housing prices were just over 7% higher in July 2018 compared to July 2017), meaning you’re likely to have a 0.5% rate increase and at least a 5% housing price increase by next year.
So if you think you’re being smart by waiting to save up money, you’re actually paying a big price. Holding off another year will likely cost you more than $60,000 on a home in the $300,000 range! In that case, you’ll have less buying power, meaning you’ll be able to afford less house.
Now let’s look at a second example. Today for a $640,000 home with 20% down and a 4.5% interest rate, the monthly mortgage payment would be $2,594. With a 0.5% interest rate increase, the payment goes to $2,748 – which is the same as if the home price went up by 5% and rates stayed at 4.5%. In other words, waiting could cost an additional $55,440 over the life of the loan in rate increase alone!
Add in at least a 5% increase in house price, and you would end up with a $2,888 monthly payment (versus the current $2,594 payment) – costing the procrastinating buyer $105,840 additional over the life of the loan! That number makes a pretty big dent in changing your buying power.
And on that note, if you’re thinking about selling your home, but want to wait until the spring market, think twice. Buyers will have less buying power next year than they currently do, which will significantly shrink the pool of people who will be interested in and able to afford your house. Want to find out the value of your home in today’s market? Request a complimentary home valuation and market analysis.
It’s not too hard to figure out why buying now before rates and pricing go up makes so much financial sense.
Want to find out what you can afford to buy today? Let’s chat!
Call us at 410.465.6900 or click here. One of our agents will be happy to meet you for a complimentary, buyer consultation to learn your real estate goals and discuss how we can make them a reality. We’ll also connect you with one of our lender partners, who can explain the loan process, run numbers, and even provide tips for how to boost your credit score.