Buy now or wait – the hazards of market timing and waiting to buy your first house
One of the most common questions I get is, “Should I wait to buy a home until I have more money saved?”
I think that good job stability and credit history are almost more important that having a significant down payment on a house. Job stability will give you the financial means to pay for the home expenses. Mortgage lenders are now conservative to whom they lend to. A good credit history is mandatory if you’re putting less than 20% as a down payment on your first house. And your credit history proves you can pay your financial obligations on time.
A home purchase is likely the largest financial purchase you will make in your life. As a mortgage professional, I’m programmed to take the financial approach. I’ve included a table to help explain why it makes sense for first-time home buyers to purchase now, rather than wait another year for a greater down payment.
Here’s the rational on buying a house now versus waiting a year for a greater down payment.
Most first-time homebuyers can purchase a decent condo or home for the price of $280,000. With $14,000 as a down payment (5%) the monthly mortgage payment will be approximately $1365.
Home prices are slated to go up in the next year. The average price increase over the last 40 years has been approximately 6% in Guelph. However, I’ll be conservative and estimate that home prices will increase by 4% in the next year. Assuming that mortgage rates increase by 0.75% in the year, the same house that you can buy today for $280,000 will be worth $291,200. This same purchase in the future will require another $560 more as a 5% down payment. The monthly mortgage payment will now be $1408 per month, because of the increase in mortgage rates for the future. In a year, the same house will cost $43 more per month in payments and an extra $560 more in a down payment.
In order to circumvent this issue, the borrower would need to put 10% as a down payment to get a similar mortgage payment. They will need to save an additional $15,100 more in a year, or about $1260 more per month over 12 months.
If you don’t have the 5% as a down payment, some good mortgage lenders are still offering mortgages with no-down payments.
Waiting another year to buy your first home can be costly. If you have good credit and job stability, be proactive with your financial future and purchase a home. More and more individuals are buying homes as single people too!
Please contact me if you have any questions about buying your first home. I can be reached at 519-763-3900 ext. 1001 or via e-mail at lastovic.s@mortgagecentre.com.