The decision to buy a home is often one of the biggest financial decisions that many people make in their lifetime. It is not only a major financial investment, but it is also a step towards independence, stability, and an increased quality of life.
Concerns over affordability, driven by high interest rates and increased home prices, may make delaying your purchase seem like the safest option. While no one should rush into home ownership, the real question is not whether to buy now, but what is the real cost of waiting to buy a home?
Buying a home is first and foremost about lifestyle: As your lifestyle, your family, and your employment change over time, your home needs to adapt as well.
Choosing a home in a location that aligns with your family's interest can improve your overall well-being and quality of life.
For example, you might choose to buy a home in a specific school district, a home located closer to work, or a home that is able to handle a growing family.
Waiting for mortgage rates to drop can cost you more than it saves you: One of the most obvious costs of waiting to buy is the year-over-year increase in home prices. With inventory remaining low, home prices have continued to increase and, as values rise, waiting could mean that you end up paying more for the same home down the road.
For example, if you bought a $600,000 home today with 10% down and a 6.5% interest rate, your principal and interest payment would be $3,375 per month. If you waited just a year, until rates were at 5.5%, but that same home appreciated by
4%, your new purchase price would be $624,000. While your monthly payment would drop to $3,153 per month, saving you $2,664 per year in interest, you would have lost out on $24,000 in equity by waiting. While waiting lowered your interest rate, it did not save you any money.
Of course, the rate you buy your home at does not have to be the rate you keep forever. Most mortgages do not contain prepayment penalties and you can refinance whenever it makes financial sense for you to do so.
Renting is often more expensive than buying: Although renting may seem like the more affordable option in the short term, it can end up costing you more in the long run. Renting means you're paying someone else's mortgage, and the cost of rent has continued to increase faster than home prices. On the other hand, homeownership provides financial stability:
When you own a home, you have more
control over your living situation, and you're not at the mercy of a landlord. Not only does owning a home mean that your mortgage payment will largely stay the same over time, you also have a valuable asset that you can use to build wealth.
The most important factor in deciding whether now is the time to buy a home is your individual readiness. The best time to buy a home is when you find one that you have fallen in love with, that meets your current and future needs, and that you can afford. If a home meets those criteria, then moving forward now may make more sense over waiting.
