Financial Benefits of Owning a Home

Waiting to Buy a Home Could Be Costly

Buying

Many people are sitting on the fence trying to decide if now’s the time to buy a home. We understand this….the market is crazy. Being a buyer takes a lot of patience and perseverance when competition is so steep. Some renters have a strong desire to become homeowners but are unsure if buying right now makes sense. We also have homeowners who are realizing that their current home no longer fits their changing needs. Is now the right time to buy? Yes! Waiting to buy a home could be costly.

To determine if you should buy now or wait another year, there are two questions to ask yourself:

  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?

Here are our thoughts on both of those 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 $525,000 as an example.

If a buyer makes a 10% down payment ($52,500), they’ll end up borrowing $472,500 for their mortgage. Applying the projected rate of home price appreciation, that same house will cost $565,425 next year. With a 10% down payment ($56,542), a buyer would then have to borrow $508,882.

Therefore, as a result of rising home prices alone, a prospective buyer will have to put down an additional $4,042 and borrow an additional $36,382 just for waiting a year to make their move. In addition to that, the buyer that buys today would actually have made a 7.7% return on their investment had they bought sooner.

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 $525,000 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 $1,992.

That same home one year from now could be $564,425, 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 $2,313.

The difference in the monthly mortgage payment would be $321. That’s $3,852 more per year and $115,560 over the life of the loan.

Add to that the approximately $40,000 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 $150,000. That’s a small fortune.

Bottom Line

When asking if they should buy a home, many potential buyers think of the non-financial 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. Waiting to buy a home could be costly. Interested in learning more about homes in the area, click here. Interested in a Buyer Consultation, we would love to connect.

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May 17, 2021

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