Why Putting Off Buying a Home Could Cost You a Lot of Money

Many people are debating whether or not now is the right time to buy a house. Some are tenants who want to buy a home but aren’t sure if it’s a good time to do so right now. Others may be homeowners who have discovered that their current residence no longer meets their evolving needs.

To determine if they should buy now or wait another year, they both need to ask two simple questions:

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?

Let’s look at the answers to these questions in more detail.

In a year’s time, where will home prices be?

Home prices are expected to rise 7.7%, based on an average of the most recent forecasts from the major industry forecasters. As an example, consider a house that is currently priced at $325,000.

With a 10% down payment ($32,500), the buyer would be able to borrow $292,500 for their mortgage. That same house will cost $350,025 next year, based on the expected rate of home price appreciation. They’d have to repay $315,022 after making a 10% down payment ($35,003).

As a result of increasing home prices alone, a prospective buyer would have to put down an additional $2,503 and borrow an additional $22,523 simply by waiting a year.

Where will mortgage rates be a year from now?

Mortgage rates are currently floating around 3%. Most analysts, however, say they will grow as the economy improves. Any rise in the interest rate would increase the cost of a home purchase. The following are four major organizations’ predictions for the first quarter of 2022:

• Freddie Mac – 3.5%
• Fannie Mae – 3.5%
• National Association of Realtors – 3.5%
• Mortgage Bankers Association – 3.9%

These four predictions have an overall growth rate of 3.6 percent, which is a significant increase from where they are now.

What does a rise in house prices and mortgage rates mean to you?

If any of these variables rise, a buyer’s monthly mortgage payments would skyrocket. If a homeowner pays $1,233 per month in principal and interest on a $325,000 home with a 30-year fixed-rate loan at 3% and a 10% down payment, the total cost of the home would be $325,000.

One year from now, the same home could be worth $350,025, with a 3.6 percent mortgage rate (based on the industry forecasts mentioned above). After placing down 10%, the monthly principal and interest payment averages $1,432.

The monthly interest payment gap will be $199. That’s an extra $2,388 a year and $71,640 over the loan’s term.

Add in the approximately $25,000 in home equity that a house of equal value would earn this year as a result of home price appreciation, and a buyer will gain almost $100,000 in net worth by purchasing this year. That’s a nice sum of money.

Bottom Line

When considering whether or not to purchase a house, many prospective buyers consider the non-financial advantages of doing so. When it comes to deciding when to buy, the financial benefits clearly show that doing so now is far superior to waiting until next year.