January 05, 2010

Reasons Why Now Is the Time to Buy

We keep hearing that now is the time to buy because of “low interest rates,” “low house prices,” “tax credits” and on and on. But, you may ask, “What does that mean to me?” The most practical way to look at it is, “How will all of this affect my family’s budget?” because after all, that is ultimately what makes a difference to us on a month to month basis.

Let’s say that you have given yourself $1200 a month to go towards housing. Most people have a pretty good idea of what quality, size and location of home they can expect for $1200.

First, let’s consider the impact of Low Interest Rates:
It has been said that when the economy is balanced and where it ought to be, rates should be between about 7 and 8%. Right now rates are at 4.875%. It also has been said (by virtually every economist out there) that rates are expected to rise significantly once the Federal Government ceases buying mortgage backed securities which is currently powering the market towards lower rates. At 4.875%, your $1200 per month would buy you a home worth about $180,000. However, when rates go to about 7.5%, $1200 will only buy a home worth about $140,000. Pretty big difference.

Next, let’s consider the impact of Low House Prices:
Home values have gone down. A home that is worth $180,000 today was worth, on average about $210,000 during the peak in 2007. Home values will go back up. They always do, especially here in Utah where the economy is more stable than many other areas in the United States. According to information gathered from the Historical Mortgage Rate Data page from www.mortgage-x.com, and illustrated in the chart below, we see that in 2007, $1200 per month would have purchased a home worth $156,000.

If you compare your purchase of a home now for $1200 a month to someone who purchased a home back in 2007 for $1200 per month, you would have $54,000 more of a home while you are BOTH paying the same $1200 a month! ($210,000 value compared to $156,000)

Third, let’s consider the Tax Credit:
The Federal Government is offering tax credits worth $8,000 for First Time Home Buyers and $6500 for Repeat Homebuyers (certain restrictions apply) for the purchase of a home. This money could be immediately used to make a principal payment on your mortgage loan knocking off possibly years of payments. You could set it aside for a rainy day fund for all the many expenses that can come from owning a home. You can literally do anything you want with it. This definitely sweetens the deal when considering purchasing a home now.

And as if all of that was not reason enough, did you know that FHA loans are assumable? This means that if you lock in a 4.875% rate and later decide to sell your home, your buyer can assume your loan and keep your 4.875% rate so long as they qualify for an FHA loan! If you are selling the home for more than you owe, the buyer would simply need to pay you the difference separately which they can do many different ways. When you go to sell, imagine being able to offer a rate around 2.5% less than what they can get through any lender!! What a selling point!!

For more information about buying now and to view all the listed homes for sale in Utah, please visit my website at www.TheSearsTeam.com.