One of the questions we’re getting right now is “Should I wait to buy in case prices go even lower?” The first part of my answer is “No one knows if prices will go lower”. The second part of the answer is “Are you willing to bet interest rates will stay this low as well?” Price is not the only money piece of the puzzle. Sometimes interest rates can have a bigger effect on your home purchase than you expect.
Interest rates have recently been below 5%, which is fantastic! Assume you’ve found a $200,000 home and you’d like to put down 25% and you qualify for a 30 year mortgage of $150,000 at 5%. The Principle and Interest on that loan would be $805.23 and that is as much as you’re able to pay. What if you wait ?
If the price goes down 8%, to $184,000 and you still put $50,000 down, you will need a loan for $134,000. Sounds great so far, if the rate stays at 5%. But if interest rates go back up to just 6% (still historically low) the payment on that loan is $803.40. Your gamble on prices really only saved you $1.83. And if the prices don’t go down but interest rates go up, you’ve lost the advantage of a cheap loan. Your $150,000 loan at 6% instead of 5% will cost you $899.33 per month, an increase of $94.10 per month. Still attractive?
Again, no one knows what prices and rates will do. But be aware of BOTH when trying to decide to buy.
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