If you’re thinking of buying a home, but don’t feel quite ready, think again! You may think waiting a few months won’t make a big difference financially, but the real estate market has shown it can — and will!
To determine if you should buy now or wait another year, as yourself two simple questions:
- Do I think home values will be higher a year from now?
- Do I think mortgage rates will be higher a year from now?
When one or both of these values increase, you will have a higher mortgage payment. While no one has a crystal ball, it’s safe to say that currently, these answers are YES — at least in the Washington, DC area.
The Costs of Waiting to Buy
You may be asking yourself what this phrase even means. After all, delaying a home purchase allows you to save more money, right? Not so fast!
The “cost of waiting to buy” represents the additional funds needed to buy a home if prices and interest rates were to increase over a period of time. What makes up this difference? When property values increase, so does the downpayment you’ll need and your monthly mortgage payment. Your mortgage insurance (required if you put less than 20 percent down), will also increase. Higher interest rates mean that your monthly payment includes more interest.
Additionally, you are losing value, specifically, amortization costs and any gains in a property’s value. Amortization cost means you’re missing the opportunity to pay down the mortgage. For instance, if you’re currently renting at $2,000 a month, that money is considered a loss. However, if you’re paying $2,000 a month towards a mortgage, part of that money is going towards the principal of the loan and you’re building that important home equity.
A Case Study
Take a look at this scenario based on a $500,000 property in our area, with a five percent down payment.
The Bottom Line
You may think you’re saving money by delaying the purchase of your next home. But there are many other ways in which waiting costs you money and equity. If you’re confident home values and interest rates will continue to rise, act now!
Ready to take the next step? Contact us today to start the conversation.