Danny Salas

Why Buy Now…Why Rate Outweighs Price

Buying Now Could Save You $$$

Where’s The Bottom?

A lot of buyers seem to be, “waiting for the bottom” of real estate prices to hit before they purchase a home.  Waiting for the right deal is crucial, however, waiting too long, could hit your pocket book more than one might think.  An understanding of how interest rates effect payments, compared to how prices effect payments, could be that final “push” that a buyer needs to see, to get off the fence and buy that home, at the most opportune time.

Think Payment, Not Price

We have many borrowers who are approved and ready to buy.  They’re in the trenches, writing offers, but some get emotionally drained when they get outbid in their offers.  They have budgeted their maximum monthly payment and, perhaps, lowball every offer, when it’s easier to just consider a higher offer, with a lower interest rate.  Let’s look at an FHA purchase…

Do You REALLY Save?

A borrower desires their maximum monthly payment to be right around $1,500 per month.  This affords them a home at approximately $210,000 when rates are at 4.875% (with only 3.5% down).  So, they’ve sat on the fence, hoping that values would continue to come down.  If they wait a year, and speculate values to fall 10%, they could wait and hope to buy that home for $189,000.   A savings of $21,000.00.

Does It Make “Cents?”

What’s important to understand about the above mentioned strategy is that with the Government Mortgage-Backed Security Purchase Program’s funds drying up, and bond values starting to trade at higher yields, interest rates are inevitably moving up.  One year from today, it is expected that long term interest rates will be about 6.5%.    So, even if that home lost 10% in value, when you plug in the anticipated interest rate, your monthly payment increases.  So, where’s the “cents” in that?

Other Reasons To Buy Now

With the First Time Homebuyer Tax Credit drying up, as well, you have about five months left to get into escrow.  So, you could be throwing away an $8,000 gift from the Federal Government.   There’s 3.8% of that $210,000 home you could buy, today.  If you move now you have the tax benefits of interest and property taxes written off the income tax you’ll pay now, as opposed to a year from now.  And do not forget, long term rates are going up, even though short term rates may stay low.

Table Comparison:

Over the life of a loan, the difference is $18,540.00.  Not to mention the $8,000 Tax Credit and the tax write-offs for a year.  Now is Definitely the time to Buy!

Related Must Reads

Understanding FHA. Why It’s King
Reasons for Higher Rates
House Passes Tax Credit Extension

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4.875%  APR = 5.838% including 1.75% Mortgage Insurance Premium

6.5%  APR=7.508% including 1.75% Mortgage Insurance Premium

This entry was posted on Wednesday, November 11th, 2009 at 10:41 am and is filed under Chico Home Loans, Home Buying, Loan Qualification, Mortgage Industry Updates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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