We are in the midst of Spring Home Buying season and there are quite a few positive indicators that it’s a good time to buy a home. There are many factors to consider before deciding if it’s a good time to buy a home, such as the economy, interest rates, supply & demand, the cost of renting vs. buying and your own personal situation.
Where are interest rates?
Interest rates are hovering around all time lows (again!) right now, so that’s one important factor to take into account when considering buying a home. What does this mean to you in real numbers? Well, let’s say you are considering purchasing a home with a sales price of $300,000. In a perfect world, you put down 20%, which is $60,000. That leaves you with a loan amount of $240,000. Don’t worry; there are many other loan programs available with much smaller down payments, such as 3% and 3.5%, which would be $9,000 and $10,500 respectively.
If your interest rate is 4.0% for a 30 year fixed mortgage with a loan balance of $240,000, your monthly principal and interest payment would be $1145.80.
Let’s say your interest rate is 5.0% for a 30 year fixed mortgage for the same $240,000 mortgage; your monthly principal and interest payment would be $1288.37.
See the difference? That’s $142.57 a month you save on interest alone! Let’s look at it over the long haul…$1710.84 a year = $51,325.20 over the course of a 30 year loan!
Now, of course there’s more than one way to look at this. That same $142.57 could also be a tax deduction for you. Be sure to check with your CPA for interest deductions. The $142.57 a month could also be the same amount as one of your student loans. Only you know what’s comfortable for you when it comes to a monthly payment and what makes sense. Keep in mind that you are also responsible for home owners insurance, property taxes and any monthly home owners or condo association fees in addition to the principal and interest on your loan.
If you are a first time home buyer, you can save yourself time and money with my first time home buyer video tips at https://www.youtube.com/watch?v=YsL6BuJ8b-M
See what DS News has to say about buying a home now, "Analyst Says Buying a HomeNow Is a Solid Investment"
How long do you plan on staying in your area?
I think your own personal situation is the most important thing to consider when buying a home. Do you like the area? How long do you think you’ll be there? How long do you think you’ll be at your job? I bought my first home about two years after I graduated from college. My Mom was so nervous for me, but I wasn’t scared at all. I knew I liked the area (dear old Baltimore, MD my heart goes out to you) and wanted to be there for a while. I had moved around quite a bit in my early years and was looking forward to growing roots in the Baltimore community. I ended up living in that house for eight years. I rented out my house for the last two years I owned it when I moved down the road to Arlington, VA before I sold it. It became my first rental property. Since then I have owned and rented homes as I moved around the East Coast. Whether I bought or rented depended on all the factors I am sharing with you here; the economy, interest rates, the cost of renting vs. buying and my own personal situation.
CNN Money also says it’s a good time to buy, "Home Buyers In These Markets Have the Upper Hand"
What’s the cost of renting vs. buying?
Does it cost more or less to rent than to buy? Any licensed loan originator as well as real estate agent should be able to help you with this calculation in your local area. Basically you take your total estimated monthly mortgage payment including property taxes, home owners insurance and any monthly home owners association or condo fees and compare it to the cost to rent something similar in location and size. To make it more complex, factor in your down payment and estimated closing costs spread over the time you think you will be in that location as well as any interest deduction your CPA thinks you would benefit from by owning. Other factors to consider are leverage and appreciation. For more help with this calculation feel free to contact me at firstname.lastname@example.org.
Julian Castro, the Director of Housing and Urban Development is positive about buying a home in 2015.
***Please keep in mind this is only an example for illustration purposes. These interest rates may not be available and/or you may not qualify for this loan type.
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