The Cost of Waiting

If buying a home has been on your to do list, the time to act is now. Interest rates just hit their lowest benchmark in decades, and while the economy recovers there has never been a better time to make a home purchase.

It is projected that in 2021 the interest rate for home loans will rise roughly 0.5% once we experience an economic recovery from COVID-19, and if you’re thinking that a half percent rate increase will not break the bank, you might want to reconsider. Here are four things to keep in mind if you’re on the fence about buying a home right now:

1. There are many programs available to lessen the homebuying expense, including our Military on the Move program that has been expanded to offer rewards to local community heroes working as doctors, nurses, medical personnel, teachers, first responders and law enforcement.
2. Down payments aren’t as daunting as they used to be. In many cases, funds received from a tax return and/or a stimulus check might be enough to make a down payment on a home now, with loan programs requiring only 3-5% of the purchase price down. You might have to pay private mortgage insurance, or PMI, on certain loans, but you’ll keep more money in your pocket for future expenses.
3. You can get more house for less with lower interest rates. Travis Mitchell, director of client relations for the Ben Chenault team at MortgageBanc, tells us that “when qualifying for a mortgage, one large factor is a buyer’s monthly debts in comparison to their income. This is known as their debt to income ratio. This means that the same home purchased today will cost more per month and possibly more upfront as well if purchased after the rates increase… and in some cases, a buyer may no longer qualify for the same home based on that ratio increasing.”
4. Rates are poised to rise as the economy recovers from COVID-19. The Fed has been keeping rates down for a long time as the nation recovered from the recession, but as the country’s economy continues to strengthen, so will interest rates. As these rates climb, so will your payments on a new home loan unless you are locked in with a fixed rate.

So what does this look like in a real scenario? Let’s say that you want to spend $350,000 on a new home. On a home loan with an interest rate of 3.25%, your estimated monthly payment would be around $1,370 if you were to put $35,000 down. If you were to wait and buy a house later, you could expect to see a rise in home price and interest rate. If you purchase a $375,000 home with the same down payment, but an interest rate of 4.5%, your estimated monthly payment would be around $1,722. That’s a major jump!

There is an optimistic outlook, however. Ben Chenault of MortgageBanc shared that “while this is concerning for some, it is also important to look at historic interest rates. Interest rates have seen as high as 20%, so when rates possibly hike to 5% next year remember that we are still in a great market. Buying power will decrease next year as rates and home prices increase, but buying power is still fantastic compared to historical averages and should not discourage anyone from getting into the real estate market.”

Are you ready to start your home buying process? Reach out to an ARC Realty agent today or the Ben Chenault team of MortgageBanc to discuss the pre-approval process.