Is Now the Right Time to Buy a Home?
Filed under: Mortgage News
If you are thinking about purchasing a home, then you are probably asking the same question that we hear from so many people: is right now a good time to buy a home? No one has a solid answer for this question, but several indications show that it is as great as ever to make the purchase.
Rent vs. Buy Scenarios
I ran a few rent vs. buy scenarios to see how the numbers stack up. We’ve all seen these comparisons, and people wonder if we have to get creative with the numbers to show that much of a benefit. But, the numbers speak for themselves. These are a few things that are taken into account:
- Tax Benefits: The numbers calculated in a tax benefit of having a mortgage, which is hit-and-miss since everyone’s tax bracket is a little different. But, you still need to account for that financial benefit since you don’t get it if you are renting.
- Amortization: It is important to look at the overall cash flow of comparing the current rent payment with a potential mortgage.
As I was comparing the numbers, I put a little bit of a twist on the calculations. It is easy to say that we might be on the brink of another fallout since the prices are so high. So, I decided to look at a hypothetical situation: what if the next 10 years looks like the last 10 years in the real estate industry?
10-Year Window for a Real Estate Purchase
What this scenario would amount to is basically zero appreciation in the last 10 years. If you bought at the top in 2006, then you are now probably close to break-even, or maybe above that point. So, my these calculations were based on:
- A 10-year window
- Zero appreciation
- Tax benefits
- Amortization
- Estimated 4% increase in rent payments
Based on these factors, you are $120,000 ahead if you would have bought 10 years ago and had zero actual appreciation in the value of your property. Click here to see a .pdf of the numbers for this scenario.
These numbers are compelling! You have to pay to live somewhere, so you might as well put your money into something that is going to offer financial benefits for your family.
What is Different Today?
Just because I use this example, you shouldn’t think that it means that we are in the same situation as 10 years ago. Here is the difference: 10 years ago when the mortgage fallout happened, there were so many interest-only or even negative amortization loans. So, people’s payments were doubling and tripling.
Now, 90% of the loans that we are doing are fixed-rate. Which means that the payment isn’t going to change. As long as the payment stays the same, it doesn’t matter if the value changes. Just hang onto the property, and the market will always work out in the long run.
None of us really know where we are in the real estate cycle. Even though we don’t have solid answers, it boils down to the wisest real estate advice: buy the home and hold onto it for the long-term. Sooner or later, you will pay it off and be glad that you made the investment.
Do you have questions? Contact Bill Provost at Franklin Loan Center for more information- (425) 241-1922 or bill@homeloanpartner.com.
