There are many questions when it comes to buying a home. Two of the most common are – when is the right time to buy? And, should you buy now or wait until you have more money saved for a larger down payment? Most of us would probably agree that having more money to put down is generally a good thing. However, the current availability of loan programs that require a low down payment coupled with historically low rates might be enough to encourage folks to buy now.
Let’s consider the value of low rates in terms of purchasing power. Consider a mortgage payment of $1,500 a month. In today’s market, using FHA financing at 3.5% for a 30-year fixed loan*, that would translate to approximately a $200,000 purchase price (and associated loan amount of $195,000). You also need to factor real estate taxes and homeowner’s insurance into your monthly payment. For this example, we assumed taxes of $4,800/annually and insurance of $900/year.
Rates are currently lower than they’ve been in more than 50 years. Over that time, the average interest rate for a 30-year fixed loan was approximately 8.0%. However, the current buyer needs to keep in mind that it is likely rates will begin to increase at some point in the future – the question is, when?
A mere 1% increase in rates (while still far below historical averages) would increase the monthly payment for that same $200,000 house by $106 per month to $1,606/month. If you wanted to stick with only spending the $1,500/month, a 1% increase in rates would result in a DECREASE in buying power of nearly $20,000!
This hypothetical example illustrates that the cost of waiting to buy could be significant. With several low down payment loan options available such as FHA, USDA, VA and Fannie Mae/Freddie Mac 97% LTV programs, now might be the time to buy.
While the mortgage process can seem complex and daunting, a seasoned mortgage professional can help you find the home loan product that is right for you and navigate you through the process. To get answers to any questions you may have, contact us at 877-723-5571 or firstname.lastname@example.org.
Univest Bank and Trust Co. is an Equal Housing Lender. NMLS #415882
*This is a sample interest rate available to qualified borrowers as of January 11, 2020.