Procrastination, we all do it! For some things, like doing the dishes, it might not have much of an impact other than eating on paper plates, but when it comes to buying a home, that procrastination could be very, very costly. In fact, depending on the home and area, it could cost you anywhere from $10,000 to $100,000 or even more.
Everyone has different reasons for waiting, I get it, but those reasons, as well justified as you may think they are, could be misguided. For example, let’s say you are looking at homes that are currently worth $275,000 and you are saving $500 a month for a down payment with the intention to buy in 12 months. Assuming there is no change in interest rates or any other significant factors that would affect the value of a home other than expected appreciation, you would only have saved $6000 to put down toward a home now costing $286,000, and that $6000 sitting in the jar marked “new home” may not be enough for the down payment and closing costs anyway.
Now, what if interest rates were to rise just 1% in that same timeframe? Well if you were to buy that home for $275,000 with 3.5% down ($9625) now at 3.5% interest on a 30-year fixed-rate mortgage, your payment would be $1,192 per month. That same home that now costs $286,000 with 3.5%down (10,010) is now 4.5% interest and with the same 30 years fixed mortgage, your payment is now $1,398 per month. That’s more than $200 per month more for the same exact home. Over the course of the loan that’s a difference of more than $74,000. If you are currently renting, you can add another $18,000-$24,000 toward the total, depending on your current rent, to the true cost of waiting 12 months.
As you can see, procrastination does not pay when it comes to buying the home you want. Whether it’s a result of appreciation, the rise in mortgage rates, or both, putting off buying now will put you behind the 8 balls in the future.
So what do you do if you simply don’t have the money for a down payment or closing costs? The good news is there are options out there available from some lenders and new home builders that could potentially get you in a home for little, or sometimes, nothing out of pocket. Consult with a knowledgeable and trusted real estate professional to see what options may be available to you. With the assistance of a realtor you get a professional, that knows the local market and understands the programs available, working on your behalf at no cost to you to buy a home.
Some of the figures above were provided by Senior Loan Officer, Dennis Lundy with Mutual of Omaha Mortgage. The amounts and percentages provided above are for reference only and will vary depending on the credit situation as well as other variables.