Skip to main content

Don't Wait for the Rate (posted September 14, 2015)

Buckle up and get ready to have your mind blown!  Okay, it’s not THAT mind blowing – some of you might even say, “well, duh” – but it’s still interesting.

The New York Federal Reserve’s economists recently published the results of a study: changes in down payment requirements have MORE influence over home buyers’ willingness to buy than changes in rates. 

Surveying both buyers and renters, the Fed found that the effect of interest rates may be overrated when compared to even small changes in down payment requirements.  The study found:

•  Dropping the down payment from 20% to 5% increases the willingness to purchase, on average, by 15% among buyers and 40% among renters
•  Decreasing the interest rate on a 30-year fixed-rate loan only raised the willingness to purchase by 5%, on average


As buyers straddle the fence between BUY RIGHT NOW with a higher interest rate and WAIT AN UNKNOWN PERIOD OF TIME to save 20% of the purchase price, here’s an example to give them a push.  Take a look at the numbers for a house with the purchase price of $200,000 with a 30-year fixed mortgage:

WAIT
$40,000 down payment
Total Loan Amt: $160,000
Interest Rate: 4%
Monthly Mortgage (P&I):  $763.86

versus

BUY NOW
$10,000 down payment
Total Loan Amt: $190,000
Interest Rate: 4.375%
Monthly Mortgage (P&I):  $948.64

No doubt $763.86 is better than $948.64 for a monthly payment – that’s not what’s at stake here.  The difference between those two payments is $184.78.  In order for a person to save the additional $30,000 to go from a 5% down payment to a 20% down payment at the rate of $184.78/month, it would take over 162 months – 13.5 years! – to get to that point, which is almost half the life of a 30-year mortgage. 

For many perspective buyers, that additional $185 is significant.  We have a number of strategies to help them make up that difference so you can get them into a home as soon as possible!

Comments

Post a Comment

Popular posts from this blog

Numbers Don't Lie, But Wherein Lies the Truth? (Posted November 21, 2016)

Said with enough conviction, you can make almost anything sound true.   Preface the fabrication with “according to a recent bi-partisan government study,” and you’re three quarters of the way to selling the lie to a lot of people.   Seriously, try this. The next time you’re at a dinner party or having coffee with friends, pepper this little tidbit into the conversation: “I read something really interesting the other day.   According to a recent bi-partisan government study – I think it took them three years to get it all done – middle-aged men who drive either a Toyota Camry or a Honda Odyssey have more testosterone than younger men who drive either a Ford F150 or a Dodge Charger.”   You’ll get some raised eyebrows and looks of mild disbelief, but don’t let that deter you.   Just lift up your hands, palms outward, and say, “I just think it’s interesting, and it makes sense when you think about it” – and then change the subject to something completely u...
Post a Comment
Read more

Couching Your Savings Correctly (Posted July 25, 2016)

I recently read an article online about a gentleman who set a goal to purchase a home and then mapped out very specific steps as to how he would reach that goal.   Personally, I was extremely impressed by his discipline and foresight.   His goal had two parts to it: save $150,000 for a down payment and purchase a home.   Before you choke on your coffee or spit soda through your nose, let me disclose here that the gentleman who is the subject of the article was purchasing a home in the New York City area.   Now that your blood pressure is returning to normal and you’ve spared your freshly ironed white shirt from staining, I’ll give you a breakdown of his plan: •   Starting in 2007, he looked at his annual salary and then took a look at the amount of credit card debt he was carrying; he cut back on as many expenses as possible so he could pay off that credit card debt in the first year.   Touché! •   He kept his lifestyle scaled back to the poin...
Post a Comment
Read more

Dumb as (or Smart as) a Box of Rocks (Posted June 27, 2016)

Obviously, you all want to know what Brexit means to the economy and the housing market specifically.   So do I!   But since my crystal ball is at the cleaner’s, let’s give the Brits and the European Union a little time to work out the terms of their separation and look at something else.   What’s a “fad ”?   With the help of Google, this is what I got as a definition: “an intense and widely shared enthusiasm for something, especially one that is short-lived and without basis in the object's qualities; a craze.” In April 1975, an advertising executive by the name of Gary Dahl invented the Pet Rock.   The idea came from his sitting in a bar with some friends who were complaining about the cost and time required to take care of various types of pets.   He marketed his “pets” by placing a rock in a box cut and shaped like one you would get at the pet store to carry home a puppy or a kitten.   Along with the box and the rock, a booklet was included...
Post a Comment
Read more