NOW IS THE TIME TO BUY!
Answers to Common Home Buying Questions
Courtesy of the National Association of Home Builders
Q: Shouldn't I wait until home prices go even lower to buy?
A: No. Just as no one can accurately predict the peaks and valleys of the stock
market (name one person who sold their tech portfolio in April of 2000), the same
holds true for housing. If you wait for what you think is the absolute best deal,
you could end up waiting for years. All the market fundamentals show that now is
a good time to buy - prices are down, interest rates near historically low levels,
and there are lots of homes to choose from.
If you buy now, you will not only be in the driver's seat during the buying process,
you will also reap the gains of price appreciation. Remember, those who purchased
homes in the early 1990s during the last big economic and housing downturn came
out as big winners.
Q: Doesn't it make sense to wait out the market until can I get the same price on
my home that my neighbor got when he sold a year ago?
A: No. It's always better to trade up in a buyer's market. While the value of your
house has fallen, the prices of higher-end homes have also dropped. Here's an example:
Your neighbor sold for $300,000. Let's say values in your area have dropped 10 percent,
so you could get only $270,000 for your home today. You have your eye on a move-up
home that previously sold for $500,000, but now is selling for $450,000. If you
sold your home today for $270,000 and purchased the larger house for $450,000, the
difference in price would be $180,000.
But if you waited to recoup the 10 percent value on your home and sold it at $300,000,
chances are the move-up home would also increase in price 10 percent to $500,000.
That's a $200,000 price difference. So by selling today, you would actually save
$20,000.
Q: Interest rates keep going down. Shouldn't I wait until they go even lower before I buy a home?
A: Interest rates for 30-year, fixed-rate mortgages are currently below 6 percent
and are extremely favorable for buyers. In fact, they are hovering near 30-year
lows. But waiting to time the market is a dangerous game. Even those who follow
the market for a living can't figure out when interest rates will bottom out. If
they could, they would all be multi-millionaires.
And home prices don't necessarily move in unison with interest rates. So, if you
decided to wait to purchase a home and the price dropped $10,000 from where it is
today, you could still end up losing money. How? If interest rates were to move
up by a half-a-point during this period, the savings on the reduced home price would
be more than offset by the higher monthly payment you would be making over the life
of the loan.
Q: I have $10,000 to invest. Should I put that money in the stock market or buy
a home?
A: Purchasing a home is by far the best long-term investment. For example, say you
use that $10,000 to purchase a $250,000 home, and the house appreciates a modest
3 percent during the first year. That means after one year, the house would be worth
$257,500 - a gain of $7,500. By contrast, putting the same $10,000 in the stock
market and posting a similar 5 percent gain would only net a $500 return on investment.
And don't forget the tax incentives. In most instances, all of the mortgage interest
and property taxes you pay in a given year can be fully deducted from your gross
income to reduce your taxable income. These deductions can result in thousands of
dollars of tax savings, especially in the early years of the mortgage when interest
makes up most of the payment.
Q: I'm a first-time buyer and still can't afford the type of home that I want. Is it best to wait, keep renting, and hope that prices will get even lower?
A: If you continue to wait, you may never be able to afford to get into the housing
market. Even as home prices are currently moderating or falling, depending on where
you live, rents continue to climb. When you buy a home, you are also purchasing
price stability, knowing that you will pay the same monthly payment for the life
of your 30-year, fixed-rate mortgage.
Once you become a home owner, you are able to take advantage of the tax deductions
that homeownership offers, and you begin to build equity in your property.
With so many homes on the market to choose from, your best strategy may be to scale
back expectations for your dream starter-home. After a few years, you can use those
equity gains to sell your starter home and move into a bigger house. The sooner
you make the jump from renter to home owner, the quicker you begin to create and
build up wealth for your family.