Shouldn’t I just wait… (re-posted)
Filed Under Buyer's, Questions · Tagged: Crunching the numbers
I posted this question about a year ago and thought that it was worth re-posting as it still rings true for Buyer’s sitting on the fence today.
One additional factor to add; The government is now offering First-Time Home Buyer’s an $8,000 tax credit for purchasing a home that closes before 12/1/09! To learn more about this credit, please read Have You Heard?
Q: With all the headlines about the housing market, shouldn’t I just wait “it out”? I’m sure to get a deal, when everything settles!
A: There are more factors to consider then just the list price.
I colleague of mine sent me this article (linked below) which I found quite interesting. The artical explains (second to last paragraph) how waiting for a lower price won’t equate to paying less.
Time Magazine
After reading the article, I did some additional research…
Property interested in purchasing, with 20% down payment…
Purchased Now…
- Price = $218,900
- Interest = 5.5%, @ 30 year fixed rate.
- Monthly Payment = $994.31
- Total Interest = $182,834.15, paid on the duration of the loan.
Purchased in 12 months…
- Price = $197,010, if the price was reduced 10%.
- Interest = 6.5%, @ 30 year fixed rate.
- Monthly Payment = $996.19
- Total Interest = $201,022.11, paid on the duration of the loan.
In either case, you are not saving anywhere near the $21,890 (or 10%) as one might think. If you take into consideration the additional payments for 30 years and the total interest paid on the loan, you really are only saving $3,025.24
Math to back me up…
ADDITIONAL MONEY YOU WOULD PAY BY WAITING A YEAR.
Difference in payment, paid over loan term…
$994.31 – $996.19 = $1.88 x 360 = $676.80
Difference in interest, paid over loan term…
$182,834.15 – $201,022.11 = $18,187.96
Now take both of the above totals and add them together ($676.80 + $18,187.96 = $18,864.76) then subtract this new total form the 10% you thought you saved ($21,890 – $18,864.76 = $3,025.24)
Oh, and don’t forget to subtract the money you shelled out for rent while you waited, plus the loss of the GREAT tax benefits!
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