How does the economy impact interest rates? Oil, stocks, bonds, Federal Reserve Chairman Yellen, flying monkeys...how do these factors play out in regards to interest rates? This is a hot topic right now, as reported by CNBC's Trading Nation this morning.
Well, you can watch a plethora of TV shows, read a ton of newspaper and blog articles. Or you can consider interest rate as merely one factor in your choice to buy a home.
I think that interest rate is an important factor while considering whether or not you will purchase a home. However, there are several other critical items to ponder. Obvious questions to ask yourself would be, "Can I afford the total monthly payment?" "What other bills may come up that I'm not anticipating?" "Will I need a new car in the near future, how much will that payment be?"
In addition to the economic piece of the equation, I think this is a very personal decision. I know that sounds obvious, but just as important as how hot the real estate market is or is not or where interest rates will go, is an individual's plans for the future.
I
believe there are at least two sets of questions that we should ask ourselves when considering the purchase of a home.
The first set of questions has to do with a person or family's plans. Am I
going to stay in this city, this state, this neighborhood for 1-2 years?
3-5 years? How is my job stability? Do I love my job? Can I work
from anywhere? Am I single or engaged? Am I planning on growing my family?
The
second set of questions has to do with the economics. What do I need/want in my
housing? Can I rent a luxury apartment or do I need a 4 bedroom house? What's
the cost of renting vs. buying? What's the cost per square foot of renting vs.
buying? Does it cost more or less to rent than to
buy? Any excellent 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.
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