Should you purchase a home now, or should you wait? Like most big decisions in life, answering that question depends on a lot of factors such as the economy, real estate market, finances, and personal life. If you are now in a position to responsibly take on a mortgage payment after considering those factors, and are instead waiting for the absolute lowest price on a home, read on to learn more about why you should act now to avoid the potential cost of waiting.
Low Interest Rates
The average 30-year fixed mortgage interest rate about a year ago was 3.75% according to Freddie Mac’s Primary Mortgage Market Survey. Today’s average comes in at 3.01%. Interest rates for mortgages are currently at all-time lows, and lower interest rates mean greater home affordability for potential home owners. To give you an example, a borrower with a $475,000 loan amount and 3.75% interest rate on a 30-year fixed mortgage would have a monthly principal and interest payment of $2,200. If the same borrower now had today’s lower rate of approximately 3%, their loan amount could increase to $520,000 and they would still have a lower monthly principal and interest payment of $2,192. That’s an increase in purchasing power of $45,000 because of today’s lower interest rates than a year ago. With uncertainty in the economy, there is a potential that interest rates will rise again at any time.
Home Values Continue To Rise
Demand for housing in the Seattle metropolitan area remains very strong and property values continue to appreciate at a fast pace. We’ll use a $500,000 home purchase price and conventional financing to illustrate how home appreciation will require more additional cash at closing. Conventional financing typically requires a minimum 5% down payment. If the home is valued at $500,000 today, that would require a $25,000 down payment. At the current appreciation rates projected by MBS Highway for King County, the same home would be valued at approximately $529,028 in a year and would then require a higher 5% down payment of $26,451. Other monthly costs would also rise accordingly such as mortgage insurance and the principal and interest payment.
In a market with high appreciation rates and rising home values, it can be difficult to out-save the appreciation you would be earning on your home. In our previous example, the $500,000 home would appreciate to an estimated $529,028 after one year in King County. That’s $29,028 in lost appreciation value over a year, or about $2,419 in savings per month.