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The Cost Of Waiting To Buy A Home

Posted: 2020-08-10 | Author: Richard Simon


As most people are aware, the COVID-19 pandemic has impacted every area of our society in one way or another. For example, when it comes to mortgage rates, Arizona and the rest of the country have been experiencing rates that are historically low. It is true that rates were already pretty low before the pandemic hit, but last month, Freddie Mac reported that the average rate for a 30-year fixed mortgage fell below 3% for the first time ever.

There has truly never been a better time to get into a mortgage, whether you are buying a new home or refinancing. Arizona refinance rates will probably never be this low again, so if you have been putting that off, now is the time to get in touch with us to discuss your refinancing options. The current mortgage rates in AZ are also most likely at or near all-time lows, so if you have been putting off buying a house, it is time to get on that as well.



What Will it Cost Me if I Wait to Buy a Home?
A lot of people are unsure about what the fallout will be and what the world will look like once we are completely done with the COVID-19 outbreak, so they may be inclined to take a "wait and see" approach to buying a house. This is understandable, but it is also important to understand that if you are in the market to buy a home, waiting until next year will probably come at a significant cost.

There are a lot of factors that go into comparing the cost of buying a home now vs. sometime in the future, so it is impossible to know for sure exactly how much it will cost you if you wait. But here is an estimate that takes into account two of the most relevant factors; the current mortgage rates in Arizona and the highly likely assumption that they will be at least 1% higher next year, and Phoenix area property values now vs. next year:

  • Scenario One: A $450,000 mortgage for a home purchased today at a 3% interest rate gives you an estimated monthly payment of $1897. If there is no change in price, the same home purchased a year from now at a 4% interest rate gives you an estimated monthly payment of $2148. In this scenario, the total cost of waiting is $90,414.
  • Scenario Two: Let’s say the price of the home drops by 10% in a year (unlikely but possible given the unpredictable world we live in). In one year, you would be getting a $405,000 mortgage at a 4% interest rate rather than a $450,000 mortgage at a 3% rate. Even though the cost of the home is less, the estimated monthly payment is still a little higher at $1934. In this scenario, the total cost of waiting is $13,078.
  • Scenario Three: Let’s say the economy rebounds after Arizona and the rest of the country get fully reopened (more likely than scenario two) and the cost of the same home goes up in one year by 10% to $495,000. With Phoenix mortgage rates now up to 4%, the estimated monthly payment on your $495,000 mortgage would be $2363, and the total cost of waiting in this scenario would be $167,755!

As you can see, even in one of the most pessimistic scenarios (with regards to home values), waiting a year to buy a house would still be a costly move simply because we are unlikely to ever see mortgage rates in Arizona that hover at or below 3% again. But this does not tell the whole story. The above comparison does not even take into account the fact that you are currently paying rent to another property owner when that money could be going toward building equity in your own home, as well as the tax advantages of home ownership and missing out on a year of potentially gaining equity as home values rise.

What If I Don’t Have a Down Payment for a New Home Right Now?
This is a concern that a lot of people have. No one wants to miss out on historically low mortgage rates in AZ, but they do not believe that they are in a position to buy a home right now. This is certainly true for some people. If you don’t have the income to afford the monthly mortgage payment, for example, then there is no sense getting in over your head just because we may never see mortgage rates like this in Arizona again.

All of that said, far too many people miss out on the opportunity to buy a house simply because they are not familiar with all of the options that are available to them. One area where this is true is with down payments. There is a common misconception that you must have 20% for a down payment or you will not be able to get a mortgage.

The truth is that there are loan programs that most people can get access to with down payments as low as 3%, and there are even down payment assistance programs that can help buyers even further. For members of the military or veterans, there are VA loans that you can get into with zero down payment.

If you are looking to buy a home in the near future, we invite you to give AZ Lending Experts a call to discuss your options. We have access to all of the loan programs available in the Phoenix area, and we can thoroughly analyze your circumstances to help you come up with the best plan moving forward. The consultation is totally free, and at the very least, it will allow you to make the most informed decision on whether to buy a home now or wait until you are in a better position to do so.


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