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Waiting to Purchase a Home Can Negatively Affect Your Purchasing Power
For decades, homebuyers have asked themselves the same question – “Should I purchase a home now or wait until the interest rates look better?”
According to thestate.com there has been a 5% increase in home values over the past year in Columbia, SC. What does that mean for the potential homebuyer? If a home was valued at $125,000 last year, this year it will be valued around $131,000. Next year it is likely to increase to $138,000. Sure, it does not seem like much, but when a potential homeowner adds in the interest rate increases, it can mean a substantial difference in just a short 12 month period.
If home prices are going up along with interest rates increasing, then your purchasing power is decreasing. Imagine you are going home shopping. Unlike regular retail shopping, the home you see today will most likely cost more next year. If trends continue, the type of home you are thinking about purchasing today may cost 5% more a year from now.
Recently, interest rates have been very low, but how long will interest rates stay low like this? No one can really tell. Armed with this information potential homeowners find themselves asking, “Would I rather take the risk and see what happens with the interest rates or buy a home now?”
Every superhero has a super power and superheroes of homeownership know how to unlock their purchasing power. What exactly is purchasing power? Higher interest rates are going to have you paying more each month for your mortgage. Lower interest rates mean you will be paying less for your mortgage each month. Your purchasing power is basically how much of a payment you can afford each month compared to current home values. If the interest rates are higher, the cost of the home you can afford to buy will be less. The concurrent is also true. If interest rates are lower, you may be able to afford a slightly higher priced home.
PRESENT MARKET CONDITIONS
$175,000 home purchased using FHA financing at 3.50% equates to a monthly payment of $891
EXAMPLE OF 5% HOME PRICE INCREASE AND 1.00% INTEREST RATE INCREASE
$183,750 home assuming a 4.50% FHA rate equates to a monthly payment of $1039
*Home price assumes a 5% annual price increase, monthly payment includes FHA funding Fee and PMI insurance and doesn’t represent any guarantee to available interest rates and/or costs associated with any available interest rate.
Now we come back to our original question – should you buy now or later? Given the tools we at Mortgage Options, Inc. have provided in this blog post, potential homeowners can see that waiting to purchase a home can be a risk. Potential homeowners could wait and see if interest rates get lower, but chances are interest rates will increase, which will in turn decrease your purchasing power as a home buyer.
The choice is ultimately up to you as to whether you will wait to purchase a home or purchase one now. Here at Mortgage Options, Inc. we want you to be a super-hero of homeownership and unlock your purchasing power. If you are undecided as to whether to purchase a home now, contact us at Mortgage Options, Inc. and a knowledgeable mortgage broker can help you be better informed as to how the current interest rates and home values are performing.