I wrote last week about the overall health of our real estate market. However, there is an epidemic that is running rampant in our market — even right now as you read this column.
This epidemic can have many long-term effects, yet is easily curable. All you need is a shot of “reality.” This epidemic that I am referring to is trying to “time the market.” We also call this being “on the fence.” Well, it is time to get off of it! Besides, isn’t that uncomfortable?
In the beginning of my career, I was taught that you cannot time the market. As a potential home buyer, you will not know that you have waited too long to take advantage of the historically low interest rates until rates increase high enough to begin to impact your buying power.
Most buyers will search for a home in a certain price range. That range is usually established by two factors — a pre-approval amount from their chosen lender and a mortgage payment range that they are comfortable with and that works with their monthly budget. As rates continue to climb, that mortgage amount will follow. So the same home one day may have a mortgage payment of $1200 per month, and then thirty days later have a mortgage payment of $1300 per month. We are still talking the same home, and possibly for the same sales price. The only difference is the interest rate. When it comes to getting a great value or “deal,” a low interest rate is the key.
Buyers are still very focused on a great value, and probably always will be. There is no better time to get a great value than today. Again, don’t wait. Time IS money in this case.
In January, with a 5 percent down payment a buyer could obtain a 30-year conventional loan at a 3.5 percent interest rate. Today, that same buyer with those same terms would be financed at a 4 percent interest rate. On a $250,000 purchase, the difference in the mortgage payment would be $68 a month, or $816 per year, or $24,480 over the term of the loan. Now for some, $68 a month may not seem like a lot, but the long term impact is huge. Additionally, it may not bother you to spend an additional $68 per month, but when the lender looks at your debt-to-income ratio (or DTI), every dollar counts. Even as little as $68 can keep a buyer from being able to purchase the home that they want or not.