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Don't Wait to Buy a Home - Here's Why

Don't Wait to Buy a Home: Here's Why
As a potential homebuyer, you might be tempted to wait out the current high-interest rates with the hope that they'll drop soon. However, according to real-world scenarios, waiting might not be in your best interest. Here, we'll explore two scenarios that demonstrate why buying now may be a more economically sound choice than waiting for rates to decrease.

Scenario 1: Buying Now
Consider purchasing a home today priced at $632,000. Under this scenario, we're assuming a 30-year fixed loan, 2% tax rate, 95% Loan to Value (LTV), a loan of $600,000, and an interest rate of 6.5%. With these parameters, your mortgage payment would be approximately $3,792.41 per month. When you factor in property taxes calculated as $12,640 annually (or $1,053.33 per month), your total monthly expenses are substantial.

Scenario 2: Waiting a Year
Suppose you decide to wait for a year, anticipating a decrease in rates to 5.5%. During this time, let's assume house values go up due to increased competition for homes, fewer seller concessions, and potential over-asking price sales. Now, your dream home's purchase price becomes $696,000 (a 10% increase in value). Your new loan amount increases to $661,000. Despite the reduced interest rate, your mortgage payment comes out to $3,753.09. The property taxes increase too, now at $13,920 annually or $1,160 monthly. While it seems like you're saving $39.32 monthly on the mortgage payment by waiting a year, the increased property taxes amount to an extra $106.67 per month. As such, waiting ends up costing you an additional $67.35 each month.

Revisiting Scenario 1: One year after
Let's add another layer to this scenario. Suppose the homeowner in the first scenario chooses to refinance after a year. They roll in their closing costs, keeping their loan amount at $600,000. With the 5.5% interest rate now applicable, their mortgage payment decreases to $3,406.73. Comparing this to scenario 2, the refinanced mortgage payment is $346.36 less per month. And with the original property taxes, the total monthly savings would be approximately $413.71

The Bottom Line: Buy Now
The assumption here is that lower interest rates automatically mean significant savings. However, the market dynamics of increased competition and escalating home prices may lead to higher costs in the long run. Instead, purchasing a home now can lead to monthly savings of around $400. Buying a home now also offers advantages beyond just the financial. It means less competition, more time to view and choose properties, and potentially dealing with more motivated sellers, leading to more beneficial negotiations. You also start building equity in your home sooner.

The key takeaway? Don't hold out for the 'perfect' rate. Consider the benefits of buying now, possibly refinancing later, and kick start your journey towards home ownership today. As always, discuss with a professional, our home loan specialists are ready to discuss your situation to help you make the best decision for your scenario.

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Don't Wait to Buy a Home - Here's Why
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