Buy now?

From my friend Katherine Swanberg in Seattle
Buy now or should you wait it out and let home prices hit bottom first?
Well, first things first, it’s nearly impossible to buy at the bottom. Anyone will tell you this, whether it’s a home or a stock or anything else. Predicating the absolute bottom, or even close to it, can be a tall order. Home prices are also regional and local, so it’s not like home prices have fallen by the same amount throughout the country.

At the same time, it’d be hard to argue that mortgage rates nationwide aren’t super low and only expected to rise. That said, let’s look at a scenario where mortgage rates rise and home prices slump.

Sales price: $400,000
Loan amount: $320,000 (20% down = $80,000)
Mortgage rate: 4.50%
Mortgage payment: $1621.39
Total paid: $583,700.40

Now say home prices fall 10 percent over the next year or two, while mortgage rates rise from 4.50 percent to 6.00 percent, which isn’t necessarily unlikely.

Sales price: $360,000
Loan amount: $288,000 (20% down = $72,000)
Mortgage rate: 6.00%
Mortgage payment: $1726.71
Total paid: $621,615.60

So as we can see, buying the home at the current higher price with the lower mortgage rate results in both a lower monthly mortgage payment and significantly less interest paid throughout the loan. That could also make qualifying easier with regard to the debt-to-income ratio requirement. However, the down payment is $8,000 higher on the more expensive house, which could prove a barrier to homeownership if assets are low. But we’re still looking at savings of roughly $30,000 with the larger, yet lower-rate mortgage. Cool huh? Get off the fence if you wanna buy!

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