With interest rates as low as they are, I don’t think buyers will ever have as much purchasing power as they do now. This means that if you’ve been thinking about buying a home, now is the time to get off the fence.
I’ll outline an example to show you what I mean. Let’s say a buyer (we’ll call him “Steve”) is purchasing a home for $250,000 at an interest rate of 4%. If you take into account the principal, interest, taxes, and insurance components of his mortgage, Steve’s monthly payment would be roughly $1,193. To put that into perspective, most two-bedroom/one-bathroom apartments are renting for $1,200 a month.
What if Steve buys that same house for the same price, except this time at a rate of 3.5%? In that case, his monthly payment would drop to $1,122. If he buys at a rate of 3%, his monthly payments drops further to $1,051.
What’s interesting is that once the rate drops from 4% to 3.5%, and if you have the budget to still pay $1,193, you can add $15,000 to your buying power. In other words, you’d be able to buy a $265,000 house. Once it drops to 3%, you can add $30,000 to your buying power if you can afford to pay $1,193 per month. The cool thing is, if you don’t want to buy a $280,000 house, you can stick with the $250,000 home at 3% for just $1,051, which is almost unheard of in this day and age.
If you have questions about today’s topic or would like to get in touch with a great loan officer, don’t hesitate to reach out to me. I’d love to help you.