Daily Intent

Buying a Home Today:  Good Idea or Bad?  A quick thought experiment

Assumptions:  $500,000 Purchase Price, 6% Interest Rate, $50,000 Down Payment.

Today: A $450,000 loan would leave you paying $2,697/ month in mortgage payments.

May 2009, one year from now:  Prices have dropped a projected 10% (some investors believe this is realistic).  Now the same property is worth $450,000.  This would leave you with a new loan of $400,000.  We must be conservative and assume interest rates track upwards to 7% due to inflationary pressures (oil) on the markets and the Fed upping interest rates.  You are then left paying $2,661/month.

Difference: $36/month savings in waiting a year.

What if you were able to get the $500,000 place today for $450,000?  Should you buy it now?  The seller may just be willing to get it off their hands.  Their situation could be that they need to sell.  You don’t know until you ask.  The question then becomes, is this the home you would love to live in? 

The reality is today home inventories are up; there are more choices than ever to find a home you love.  However, you don’t know if this is going to be true a year from now.  Would it be worth it to you to pay $36 extra per month knowing you found the home you love?  Might it be better to start looking today rather than wait?

All great questions and no one answer.  But be sure you work through the pros and cons if you are finding yourself sitting on the fence waiting for some huge blow out sale…for as you’ve seen above, it may be better to negotiate now during a time you know for certain: rates are low and inventories are high.