Today I came across two buyers that are debating on buying now or waiting until next year when they will have more money saved up to put down. One buyer has been putting off their purchase for the last two years waiting for the market to come down. What has this cost him? Not only his bargaining power but also his buying power.
Bargaining Power because in the market this year compared to last year there are multiple offers on each property that he has offered on which means that he no longer is able to offer at or less than the list price, but net the seller at or above the list price with competing offers.
Buying Power, because property values have increased in some areas 15-30% above last year and with the recent increase in interest rates of 1% this has decreased his ability to qualify for the type of home that he wants because now the payments are too high.
Both buyers decided last year that they wanted to save up more money to put down so that they could get a Conventional Loan instead of an FHA loan to save on the mortgage insurance but that extra 1% interest rate is a lot more than the .01% upfront Mortgage insurance increase which on a $200,000 purchase equated to $15/mo ($5400 over the life of the loan). The 1% jump in interest rate is a difference of $115/mo or ($41,400 over the life of the loan). In this market it is important to weigh all options and look at the long term picture. You have to pay mortgage insurance on both FHA and Conventional if you don't have a 20% down payment. Interest rates are higher on conventional which, in some cases, make the payments exactly the same. Some buyers are concerned about FHA loans now because the Mortgage Insurance is now for the life of the loan whereas before it could drop off if you have 78% equity in the home after 5 years. Well if you bought your home in the last 9 years, there is no way you have 5% equity if not any at all, especially if you bought your home with the old FHA loan in which you could also borrow the down payment (Nehemiah). So what difference does it make if you have the mortgage insurance for the life of the loan because the chances of you having the same loan or even the house in 30 years in slim to none. You will refinance down the road or even sell the home within 5 years so any equity you have in the home, unless you are throwing huge chunks at your mortgage, will go to your next home when you are ready to move up.
So, in conclusion, my advice to you is...Buy NOW!!!! In just the last month, the buyer looking at a $255,000 home now has to buy a $240,000 home just to keep the same payment. He couldn't even find a home that he liked in the $250,000 range let along the $240's. Interest rates are still low, and prices are rising which means that you will get the equity in the home as the market still appreciates instead of buying at the peak!
The market is always changing and has it's ups and downs but overall in history the values go up! Real Estate is a long term investment. It is always best to buy when the time is right for you but if you are waiting to time the market just right, it has already passed you by.
