|
HOME AFFORDABILITY CALCULATOR |
"Everybody wants to know how to best time the market when buying a home. It's just natural. Especially if you're thinking about buying in a down market where homes prices are declining. You wonder how low they will go and whether you should wait, right?
Some Home Buyers Should Buy Immediately:
You're probably thinking: "Of course, she would say that. She's a Realtor, and agents always say 'Now is the best time to buy'." Well, here is why:
- If you are a seller who wants to move up to a more expensive home in a down market, now could be the best time. The longer you wait to sell, the lower the price of your home could fall.
- If you can arrange for alternate housing, a smart strategy is sell now, wait a few months, then buy your new home.
If you sell and buy simultaneously, you'll still be ahead of the game because the price reduction on the purchase is greater than the loss on the sale.
Consider the "Loss" on Selling Your Present Home:
For example, say your present house is worth $300,000, but because of high inventory and few buyers, you must reduce your price by 10%. So, instead of receiving $300,000, you would get $270,000 and "lose" $30,000.
Consider Your Real Profit:
Now, consider this. Say you bought this home 10 years ago and paid $100,000. You're still ahead $170,000, less costs of sale, aren't you? (This ignores monthly payments, but you would make those if you were renting, too.)
Consider the "Savings" on Buying Your New Home:
If you are planning to move up to a $500,000 house, which is located in the same distressed market, you could probably buy that house at that same 10% discount or $450,000. This would mean you had saved $50,000.
Review of Selling and Buying Numbers:
- So you "lost" $30,000 on the sale of your home
- But you "made" $50,000 on the purchase of your new home
- Doesn't that put you $20,000 ahead?
Don't Forget the Impact of Interest Rates:
For example, suppose you're applying for a 30-year, fixed-rate $300,000 mortgage. Note how a small change in rate can makes major difference in your monthly payment and the overall cost of your home through the years:
|
Interest rate |
Principal |
Total Interest paid |
Monthly Payment |
Total Cost, Principal & Interest |
Total Additional Cost |
|
6% |
300,000 |
347,515 |
1,799 |
647,515 |
0 |
|
6.25% |
300,000 |
364,975 |
1,847 |
664,975 |
17,460 |
|
6.50% |
300,000 |
382,633 |
1,896 |
682,633 |
35,118 |
|
6.75% |
300,000 |
400,486 |
1,946 |
700,486 |
52,971 |
|
7% |
300,000 |
418,527 |
1,996 |
718,527 |
71,012 |
As you can see, a single percentage point on your mortgage has a huge effect on a home's affordability. The moral? When you're looking for a bargain, it's easy to focus on sales price, but be sure you're not losing sight of the big picture. If you try to time the market to save a few thousand on the price of a home, you might end up with a higher monthly payment and total overall cost of home ownership. "
