Affordability in Todays Housing Market – Better than an 8K tax credit

In case you have missed reading the newspaper, or you don’t follow the financial news, you might not be aware that 30 year mortgage rates are at historic lows. So is now the time to buy a new home? It was not very many months ago that we had absolutely wonderful rates around 5.5%. Hold on to your hat, because right now you can find rates around 4.375%. You might even do better than that on any specific day that you lock a rate. So what does that mean to the home buyer in this market? Well it could mean a couple of things. It could mean you can buy more house than just a few short months ago. It could mean that you could pay quite a bit less on a monthly basis for a similar home. It could be some combination of the two. It could mean that you can buy a home for less than rent money, and enjoy the favorable tax treatment afforded to homeowners as well. Oh, and if you are kicking yourself for missing out on the $8000 tax credit, you might as well start patting yourself on the back instead. These rates provide long term savings far in excess of the $8000 tax credit.

So let’s look at a couple of examples.

A couple of months back a 5.5% interest rate on a $200,000 home purchase with 20% down would have set you back about $908 per month (principal and Interest). If you bought that same home today at 4.375% interest with the same 20% down payment your monthly payment would be about $799 per month. Holy cow, that $109 per month will pay a cable bill, a cell phone bill, maybe even your property taxes. Take that $109 per month and multiply that out over 30 years and you have a nice $39, 456 saved. That is far better than an $8000 tax credit.
So you don’t want to spend 200K on a home, but feel more comfortable at $150,000. The numbers still play out well. At 5.5% interest your monthly payment on that conventional loan would have been $681.35. Today at 4.375% that payment is $599.14. That’s a whopping $82 bucks a month savings. Over the course of the 30 year term that savings amounts to just under $29,600. Not too shabby if you ask me.

Similar savings can be found in FHA loans where 3.5% minimum down payments exist. You just need to explore your options with someone who can actually help you.

I know that there are people out there and some of the media who think that the bottom in this housing market is not in yet. So what would happen if the market dropped another 10% for that hypothetical $200,000 home and interest rates popped back towards 5.5% which will happen at some point in the future. Well that $200,000 home could be bought for $180,000. The payment on that home at 5.5% would be $817.62 per month or about $18 per month MORE than you can buy that $200,000 for today at today’s rates.
Opportunity is knocking. Need to talk about your situation. Give us a call.