When Does It Cost More to Buy a Home?

Like a lot of things, it all depends

In the housing market there is always good news and bad news. Usually, the determination of good and bad depends on which side of the transaction you’re on. If you are a Seller right now or will be soon, the news is good. A report from the National Association of Realtors on February 10 tells us that just over half of the metropolitan areas in the U.S. experienced price gains from a year ago.  With our stable economic environment here in the Washington, D.C. metropolitan area, we are always one of those areas that recover quickly and we have seen price increases of about 5 percent.

So, good news for Sellers and not so good news for Buyers, because houses will cost a little bit more. But wait, interest rates are still low, so even though the house may cost a bit more; the impact on a mortgage payment may not be that big, right? May be good news for Buyers.

There are a few financial issues to consider when buying a home. The first and most obvious issue is price, of course. However, as a Buyer, price should not be the only issue you look to resolve. The other BIG issue is your mortgage and how much interest and other fees you have to pay to obtain the mortgage and keep it for 30 years. When interest rates increase it costs more to purchase a house. In other words, the total price you pay for a house increases. 

Consider this example from the KCM Blog: say you purchased a one bedroom condo 90 days ago and your mortgage is $170,000 with an interest rate of 4.17%. You would be paying $828.36 for your mortgage payment every month. Now say your friend waited 90 days and bought a one bedroom condo today with the same mortgage, $170,000. Because interest rates have gone up over the last 90 days, your friend obtains a mortgage with an interest rate of 5.05%. Your friend is paying $917.80 a month for the same condo at the same sales price. However, your friend is paying $89.44 a month more than you. That’s $1,073.28 over the next year and $32,198.40 over the 30-year life of the mortgage. Therefore, your friend actually paid $202,000 for his condo instead of $170,000. Not good news.

Of course, if we all had crystal balls and could tell the future we would always buy low and sell high, and be rich! But, it doesn’t work that way. For most of us there is good news and bad news. The bad news is that sales prices are up a little and interest rates are up a little so homes will cost a little more. The good news is that prices and interest rates are still historically very low. As a Seller, you could still find a buyer for your home and then find a dream home that you can afford.   As a Buyer, you could still find a home at a sales price and interest rate you can afford! 

For more information call Jacquelyn Nunez, Exit Realty Associates, Lorton Station Blvd, 703-339-7506 or direct at 202-744-8563


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