Why Waiting to Buy a Home Could Cost You a Small Fortune

Dated: May 21 2021

Views: 39

Why Waiting to Buy a Home Could Cost You a Small Fortune

Why Waiting to Buy a Home Could Cost You a Small Fortune | MyKCM

Many people are sitting on the fence trying to decide if now’s the time to buy a home. Some are renters who have a strong desire to become homeowners but are unsure if buying right now makes sense. Others may be homeowners who are realizing that their current home no longer fits their changing needs.

To determine if they should buy now or wait another year, they both need to ask two simple questions:

  1. Do I think home values will be higher a year from now?
  2. Do I think mortgage rates will be higher a year from now?

Let’s shed some light on the answers to these questions.

Where will home prices be a year from now?

If you average the most recent projections from the major industry forecasters, the expectation is home prices will increase by 7.7%. Let’s take a house that’s valued today at $325,000 as an example.

If the buyer makes a 10% down payment ($32,500), they’ll end up borrowing $292,500 for their mortgage. Applying the projected rate of home price appreciation, that same house will cost $350,025 next year. With a 10% down payment ($35,003), they’d then have to borrow $315,022.

Therefore, as a result of rising home prices alone, a prospective buyer will have to put down an additional $2,503 and borrow an additional $22,523 just for waiting a year to make their move.

Where will mortgage rates be a year from now?

Today, mortgage rates are hovering around 3%. However, most experts believe they’ll rise as the economy continues to recover. Any increase in the mortgage rate will also increase a purchaser’s cost. Here are the forecasts for the first quarter of 2022 from four major entities:

The projections average out to 3.6% among these four forecasts, a jump up from where they are today.

What does it mean to you if home values and mortgage rates increase?

A buyer will pay a lot more in mortgage payments each month if both of these variables increase. Assuming a buyer purchases a $325,000 home this year with a 30-year fixed-rate loan at 3% after making a 10% down payment, their monthly principal and interest payment would be $1,233.

That same home one year from now could be $350,025, and the mortgage rate could be 3.6% (based on the industry forecasts mentioned above). That monthly principal and interest payment, after putting down 10%, totals $1,432.

The difference in the monthly mortgage payment would be $199. That’s $2,388 more per year and $71,640 over the life of the loan.

Add to that the approximately $25,000 a house with a similar value would build in home equity this year as a result of home price appreciation, and the total net worth increase a purchaser could gain by buying this year is nearly $100,000. That’s a small fortune.

Bottom Line

When asking if they should buy a home, many potential buyers think of the nonfinancial benefits of owning a home. When asking when to buy, the financial benefits make it clear that doing so now is much more advantageous than waiting until next year.

Latest Blog Posts

Your Home Equity Can Take You Places [INFOGRAPHIC]

Your Home Equity Can Take You Places [INFOGRAPHIC]Some HighlightsThe amount of wealth Americans have stored in their homes has increased astronomically.On average, homeowners gained $33,400 in

Read More

Today’s Real Estate Market Explained Through 4 Key Trends

Today’s Real Estate Market Explained Through 4 Key TrendsAs we move into the second half of the year, one thing is clear: the current real estate market is one for the record books. The exact

Read More

Remote Work Has Changed Our Home Needs. Is It Time for Your Home To Change, Too?

Remote Work Has Changed Our Home Needs. Is It Time for Your Home To Change, Too?Over the past year, many homeowners realized what they need in a home is changing, especially with the rise in remote

Read More

3 Charts That Show This Isn’t a Housing Bubble

3 Charts That Show This Isn’t a Housing BubbleWith home prices continuing to deliver double-digit increases, some are concerned we’re in a housing bubble like the one in 2006. However, a

Read More