If you’ve been thinking about whether you should purchase a home, you might want to think about applying with a lender. This helps to get a read on where you are financial picture. If you’ve been thinking about purchasing a home, but you’re just not quite sure yet here are some things to consider…
What type of home do you want versus what type of payment? The house could be a mid-tier home or perhaps even a starter home to get your foot in the door as a launchpad for future real estate success. Anyone successful in real estate will probably share buying a home and holding it for the long term is how they accumulated their wealth. For example, let’s say today you can purchase a home for $800,000 and the mortgage payment based on your down payment is $4500 a month.
Your budget supports the payment of more than $4000 a month payment. Interest rates are in the 6% range presently and climbing. Higher rates can diminish your borrowing power, but housing prices also tend to be a little bit more negotiable. As a result of this relationship if your target is $4000 a month, and you know that an $800,000 house you could probably negotiate down to at least $750,000 most likely depending on how it’s listed, the area the location, etc. That $800,000 house is now $750,000. $50,000 of spending power on average is about $250 a month of payment. So maybe your target at $4000 a month is not attainable but $4250 a month in that range is attainable considering that you can negotiate on the house.
If you’re in the neighborhood of buying an $800,000 house and if you can’t absorb an additional $250 a month based on your budget, you probably shouldn’t be buying a house. You should go back to saving or working on your financial situation to better your finances. However, the value of buying a home today means you can get a fair price on a house. This has been brought on by the higher interest rates which have reduced competition. As a byproduct of this shift in the market, you can negotiate on a house and have a great price on the house with a temporary interest rate. Knowing the interest rates are cyclical and there certainly will be an opportunity to refinance that 6% mortgage for example by .75% to 1% lower in rate in a few years anyway. A .75% to 1% reduction in your interest rate on a $750,000 house price is probably going to result in a payment difference of about $400 a month.
So putting the whole big picture together your $800,000 home is now $750,000 because you have a great real estate agent who negotiated for you. Your payment is $4250 a month, and it’s temporary until interest rates drop at which point your payments could go as low as $3,600 to $3,700 a month. Based on an approximate 1% reduction in interest rates in the next 1.5 – 2 years which is probably a fair bet.
By and large, when you buy a home and get a lower price on the home you also lock in your property taxes as well. The benefit of locking in your property taxes is that you’re not paying taxes at an inflated price. Since you didn’t have the competition to bid up the house in the first place, it allows you to have a lower fixed cost that generally remains permanent. While at the same time affording you the ability to change out the variable which is the interest rate on your fixed-rate mortgage. Working with a quality mortgage professional who can accurately articulate all the pros and cons to present market conditions as it relates to your finances is your best bet.
If you’re looking for a mortgage to get pre-qualified for a home or just want to understand what you can afford start today by getting a no-cost loan quote!