A Simple Equation for Buying a Home

A lot of people shopping for homes are worried about ‘timing the market’, trying to make sure they are buying at the right time.  Nobody wants to buy a new home and find out in six months that similiar houses are now selling for less.  While buying at the right price is important, it’s not the only factor in determining how much you’ll eventually pay for a home.  Often overlooked in the equation is the interest rate paid on your home loan, which is a much bigger factor in your payment than many people realize.  At last week’s Keller Williams’ Family Reunion in Orlando, FL Gary Keller and the KW Research Team shared a very important equation that all home buyers should know:

A 1% change in interest rates = 10% change in sale price

Wow, that’s a great number to know!  As an example, if you buy a $200,000 home and finance $180,000 at 4% interest you’re monthly payment is $859.35.  If the home were 10% less ($180,000) but the interest rate was 1% higher (5%) the monthly payment is $858.91.  Keep in mind that this payment is only principal and interest and doesn’t include any required tax or insurance escrows. 

So now that we know that the interest rate that we pay is so important that leaves us with another important fact that Gary shared last week:

In our current market, it is 20x more likely that the interest rate will change than the sale price.

This weeks quote on a conventional 30 year fixed rate mortgage is around 3.875%.  So do you think that rate is more likely to go up or go down?  This is the ‘platinum age’ of mortgage rates.  We can pretty safely say that rates cannot go any lower; the bank is never going to pay you to take their money!  If you’ve been on the fence about buying, the exampe we did above should answer a lot of questions for you.  If you have any other questions or want to know about current rates call me at 484-893-1234 or email homes@debandjoe.com.  We’re always here to help! 

Buy or Rent? New Numbers

I like to check in with my team members on a regular basis to see what news and insights they have from their particular area of expertize. Loan Officer Mona Campos updated me on the latest ‘Rent vs. Own’ numbers:

Buy or Rent?

Home prices and rates have fallen so far that the monthly cost of owning a home is more affordable than at any point in the past 15 years and is less expensive than renting in a growing number of cities.

The Wall Street Journal’s third-quarter survey of housing-market conditions in 28 of the nation’s largest metropolitan areas found that home values declined in all but five markets compared with the second quarter, according to data from Zillow Inc. Meanwhile, rent levels have risen briskly across the country and rates are the lowest in six decades.

As a result, monthly payments on the median priced home-including taxes and insurance-are lower than the average rent levels in 12 metro areas, according to data compiled for The Wall Street Journal by Marcus & Millichap, a real-estate brokerage that tracked 27 metro areas. “It’s one of the most striking developments of the housing downturn,” said Paul Dales, an economist at Capital Economics. “The initial building blocks for a recovery are in place. Home ownership is looking more affordable because after several years of declines, apartment rents will rise by around 4% this year and are poised to pick up even more momentum next year.”

Source: Wall Street Journal

If you’ve been thinking about buying your first home, call or write and we’ll send you a free copy of Your First Home by Gary Keller and Jay Papasan, a great step by step guide to getting started with home ownership.

The Worst Thing to Ask When Shopping for a Mortgage

I was talking with my favorite loan officer last week and she told me that many people make a huge mistake when shopping for a mortgage for their new home or when refinancing their old one. What is that mistake? According to Mona Campos at Waterstone Mortgage, the first question they ask is, “What is your rate?”

Well that seemed like a pretty sensible question to me, so I asked her what she meant. She explained that there’s a lot that goes into determining your personal rate, and any answer you get to that question isn’t a good one until you’ve had a thorough discussion of your situation with the loan officer. The loan officer will need to ask you about your credit, the amount you’re putting down, your debts and cash reserves, and the stability of your income before determining a true and accurate rate.

There are other important factors to consider in addition to the rate. For example, what fees are charged by the lender? Not all fees are negative and paying a little more now can sometimes save money later, but you have to know what the fees are and understand them. Another consideration is the variety of programs that are available from the lender. While many homebuyers just want the lowest rate possible there are many who are looking to pay off that mortgage as soon as possible. A mortgage with a 20-year term may be more advantageous if your goal is to build equity as quickly as possible.

Finally Mona advises that it’s important to know who you are dealing with when shopping for home financing. You should know not only the mortgage company, but also the qualifications of the person who’ll be taking you through the process. If your loan officer can’t put your loan request together in the right way, it is more likely that something could happen to create stress in the process, change your rate quote, or even cause the loan not to go together.

A rate quote may make you feel good, but it would be better if you had the right information to help you achieve your short and long-term goals.