Real Cost in Waiting to Buy A House
Home cost is impacted by interest rate changes. As a mortgage lender many Borrowers are still expecting Interest Rate and Sales Prices to continue to go down. When I am Pre-Approving a Borrower who is struggling with this decision, I try to explain that There Can Be A Cost By Waiting To Purchase if
Interest Rates and/or Sales Prices go up instead of down.
The Cost of waiting can have a two fold effect. If Interest Rates and/or Sales Prices go up, the same house will cost more. This is obvious, what is not so obvious is the loss of Purchasing Power if they guess wrong.
Let me explain with the use of the chart below. I have put together this chart to show Borrowers the reduction in their purchasing power if they wait, and Interest Rates go up.
The one below is for FHA Mortgages.
Real Home Cost in Waiting to Buy A House
Once I put in the maximum total monthly payment (principle & interest, taxes, homeowner insurance, MIP-mortgage insurance premium) that the Borrower can qualify for, in this case $1,500 at a 30 year term, it automatically calculates the maximum Sales Price that monthly payment will purchase at different Interest Rates. As you can see, if the most a Borrower can Pre-Qualify for is a total monthly payment of $1,500 per month, they will be able to purchase a house with a Sales Price of $186,612 at 3.5%. However, if the Interest Rate increase by even a small amount like .25%, they will not be able to purchase the same price house. An increase of .25% in the Interest Rate will cost them $4,291 in purchasing power, which will lower the maximum Sales Price to $182,321.
Real Home Cost in Waiting to Buy A House
The above spreadsheet also let’s Borrowers see quickly what their overall costs and total interest that they will pay with each increase in Interest Rate. For example, if the Interest Rate goes up by one full percent, the Borrowers will pay $22,297 more in Interest over the 30 life time of the mortgage, on a house that is $16,512 lower in price. That is a very high cost for choosing to wait and not buy now.
Real Home Cost in Waiting to Buy A House
The nice thing about using a spreadsheet like this, is that I can quickly show Borrowers not only how much purchasing power they are losing each time the Interest Rate goes up. Also, I can also quickly show them the same thing for lesser or higher amounts as well. Once Borrowers have visually seen that There Can Be A Cost By Waiting To Purchase, most often they come to the realization that waiting to buy may not be such a good idea. Real Home Cost in Waiting to Buy A House.
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Info about the post author and guest blogger, George Soutu:
George Souto is a mortgage Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com.
I appreciate George’s shares on mortgage information in the current real estate times with my web site readers at www.RIHouseHunt.com. He is a mortgage lender located in Connecticut and contributes frequently to my blog.
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