The decision to buy a house, especially a first home, is major. Life changing in fact. Almost every day my team and I speak to individuals or families who dream of buying their very own home. We answer a lot of questions they have regarding, down payments, types of programs we offer, how to find an agent, how the process starts, how long does it take and much more. But, one of the more common questions we get is whether or not now if the best time to buy a house.
There is an old saying you may have heard that says, “The best time to plant a tree is twenty years ago. The second best time is now.”
The saying is trying to convey the idea that you shouldn’t have regret for not taking an action in the past and instead be encouraged you to take that action now. It is rarely too late to take action and still benefit from that action. No regrets.
When it comes to purchasing a home, now is the best time. Having said that, be sure you are financially ready for such a step. If you are, then look a few things that make buying a home now a great idea.
Three Reasons Buying Now Is Smart
It’s forced savings
Each month when you pay your mortgage a portion of it goes to the principal. The rest goes to interest. That’s how the banks make their money. But the portion that goes to the principal should be thought of like a savings plan. You are paying yourself by building equity. The median Americans saving account balance is $5,200*. That’s not much. Owning a home and building equity can be extremely useful when you are ready to retire.
It’s yours to sell
No one ever knows what the future holds. If by chance you are single you may eventually get married and need a home with more space. Maybe, you have plans for growing a family. Perhaps, you are an animal lover and need a bigger home with a bigger yard because you just can’t stop adopting furry friends. There are a hundred reasons why someone would need to buy a more substantial home. The point is, buying a home now can help leverage you into a larger home when the time comes.
You get tax breaks
The first couple of years paying your mortgage, a majority of the payments goes to your interest. The good news is you can deduct a percentage of your mortgage interest from your taxes. Ultimately this can help you save money by reducing the overall amount of taxes you would have normally paid. Last I checked, rent payments still aren’t deductible.
Waiting To Buy A Home Can Cost You Money
Still unclear whether or not now is the right time to buy a home? If you are financially fit then why not? If you have been thinking about buying but keep putting it off because you are waiting for a better time, now is a good time to start thinking about that tree. A tree can’t grow if you never plant it. A tree that was planted 20 years ago, 10 years ago, 5 years or even 1 year ago is already getting ahead. Your tree hasn’t even started. Think about it.
When weighing all the pros and cons of buying a house now one thing to consider is how much it’s going to cost you to not to buy. I’m not talking about throwing your rent money out the window, everyone knows about that. I’m talking about how much more it’s going to cost you to buy the house that you’re waiting on buying.
Yes. The house you haven’t bought, but will buy in the future will cost you money if you wait.
How Much Will It Cost?
Let’s look at an Example.
Now there are a countless number of buyer scenarios and combinations of loan programs. Everyone home purchase is unique. But, for the sake of this conversation, I will use a simple financing scenario that a first-time buyer might find themselves. You can also download a pdf version of these scenarios complete with graphs and charts to help give you a better visual understanding and a lot more detail if you are interested.
Loan Type: Conventional Fixed
Term: 30 years
Credit Score: 680
Down payment: 5% ($8,550)
Property value: $171,000 (Average Cost of PA Home*)
If you took that loan today and closed on a home you would have an estimated payment of $1,302 and an annual expense total of $15,624.
Wait 1 year and you will pay a bit more for the house as it appreciates. You are now looking at a monthly payment of $1,345 and an annual expense total of $16,138.
Wait 3 years and you will pay a bit more for the house as it appreciates some more. You are now looking at a monthly payment of $1,450 and an annual expense total of $17,399.
This means you are paying an additional $1,775 a year. May not sound like much but these numbers are assuming the interest rate stayed at 4.25%. At the time of this writing, interest rates are still really low but have been slowly rising.
Let’s say you waited 3 years and rates moved to 5.5%. Now your monthly payment is $1,588 and your annual expense is $19,052! That’s $3,428 more per year than if you bought right now.
If this doesn’t grab your attention maybe this will.
Waiting 6 months you lose an estimated $2,900. Wait 1 year you miss out on approximately $5,848. But let’s say you really hold off. By not buying that home now is a loss of $20,224 in appreciation in 3 years. Wow!
The loss is even greater when you factor in amortization lost. You can see that by looking at the graph. But, amortization is a subject we can tackle another day.
Are You Ready To Buy A House?
For now, I wanted to focus on helping you decide if now is the best time to buy a house. Is it? The purpose of this blog isn’t meant to tell everyone that they have to buy a home now on the very day of writing this blog. Because everyone has a unique situation that wouldn’t be prudent. My goal is to help those who are prepared to buy, leaning towards it but may be holding themselves back.
If you are financially ready and comfortable with the idea of buying it is a great time to buy.
The best time to buy a house was twenty years ago. The second best time is now.
*The loan cost and analysis scenario is an example of how much the cost of waiting to buy a home is. It is based off real buyer/purchase information but used for the sake of conversation. Varying rates, pmi, home insurance and other factors can create different outcomes and in no way are the calculated monthly or annual expenses going to be exact for any single borrower.
* Loan scenario cost information provided by MBS Highway. https://www.mbshighway.com