When you first start thinking about buying a home, it may seem so overwhelming and out of reach that you give up and decide you'll just have to keep renting for the next few years. You may have heard all the talk about high interest rates and your afraid you're going to make a huge financial mistake by buying now! My goal with this series is to put together an easy to follow guide to help you make the best decision for yourself and your homebuying journey.
!!! I am not a mortgage lender or a financial advisor. Everything in this blog is just my opinion and I do not claim to be a financial or mortgage expert. !!!
To begin, I want to discuss the interest rates we've all been hearing about. While interest rates surely seem high compared to the last 10 years, they are historically about average! It also seems to be the revolving opinion that they are not going to come down anytime soon. What does this mean for you? Well, if you are a first time homebuyer, I wouldn't worry too much about the rates. Yes, if you bought a home 5 or 6 years ago, your rates would have been a bit lower, and you probably could have afforded a more expensive home. Unfortunately that time has already passed and there's really nothing you can do about it now. My advice is to focus on what you can afford now, and if rates fall in the future you can always see about refinancing or selling and buying a new home!
Next let's discuss renting vs buying. You may think renting is more economical. Yes, you don't have to fund repairs yourself and the down payments are much less. Why don't we look a little farther in the future, and I must warn you, it's about to get a little math-y. If you spend 1200 in rent every month, you are spending 14,400 a year on rent. In 5 years, that would be 72000 dollars! That's money you will never get back. Now lets say you bought a home for 150,000. Yes, I know that's on the lower side for the housing market right now, but I am sure I could find you a condo or duplex for that price, which would be comparable to the apartment you would be renting! Let's say you did a 3.5% down payment (5250) and your interest rate is 6.5%. You would be paying about 1217 a month for your home! Now, maybe in 5 years you've saved up enough for a larger home, so you decide to sell this home. At this point, you've paid about 78,270 for your home (down payment included) and you probably have about 135,500 left on your mortgage. Chances are housing prices have gone up a little in the last 5 years, and you've listed your home with me, so you know you're getting the best price for your home. I list your home and it sells for 200,000. You pay off your mortgage, the buyer and sellers agents, (about 7% of the sales price) and ill tack on another 3% of the sales price for other listing fees you may have to pay. You're left with about 44,500 dollars! Subtract that from the money you already spent, (78270-44500) and you're at a loss of about 33,770. Ok, so not great, but let's compare that to the 72000 you would have spent on rent anyway! Even at a loss you're still saving money by buying, and the more time that passes, the more money you will save.
But Ashley, I can't afford a 3.5% down payment! I can't even qualify for a loan! I want to buy a home but I am in a ton of debt and my credit score is low, what should I do?
These are all very understandable and common concerns. While I can't give you financial advice, I can point you in the right direction. If you want to buy a home but you know you can't right now for any of these reasons, I would suggest you reach out to me, and I can send you to a good mortgage lender or a financial advisor so you can discuss your concerns. Maybe you can't get qualified for a loan immediately, but they can help you figure out exactly what needs changed and come up with a plan to help you achieve it.
Thank you for reading and I hope this has helped you gain a little insight into the scary world of real estate and help alleviate some of your concerns. In my next post I want to provide you with some info on different loan programs and assistance programs that may be able to help you buy a home with less of a down payment, no down payment, and help with closing costs.
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