The Case Against Waiting to Buy
So you’ve been sitting on the fence because you think housing prices will continue to fall, right? Bad idea, unless you can afford to pay cash for a home outright. Why? Because the amount of your payment is determined by the rate at which you borrow. Here’s an example:
Buy a house today for $218,900 with 20% down and a 30-year fixed rate mortgage at current rates of roughly 5.5% and you’ll find yourself with a payment of about $994/month.
Let’s say you’d rather wait until the price of that home comes down to say, $197,000. GREAT! Right? That’s $21,000 less today than it was a year ago. But wait, the recession has ended and the fed has increased the rates to 6%, a mere half percent higher. Guess what your payment will be. You got it, $994/month.
The home purchased at $218,000 today will cost you $182,000 in interest over 30 years for a total cost of ownership of $400,000.
If you wait one year and lose one half of one percent, that same home at $197,000 will cost you $182,000 in interest over 30 years for a total cost of ownership of $379,000.
$400,000 – $379,000 = $21,000.
$218,000 – $197,000 = $21,000.
So now that we see that the difference in the total cost of ownership is the same as the difference in sale price, what difference would it make to you whether or not you wait a year.
How much money are you going to waste this year on rent? How much is a year worth to you? How important is your time and how are you going to feel one year from today when you’re still stuck in a rental that you can’t truly make into your own home?
The bottom line is, waiting for the price of a home to fall may cost you more than you know. Why wait? Buy now.