Is It a Good Time to Buy a Home?
Many of my past clients often ask if this is a good time to purchase a home or should we wait for another year so the housing market can stabilize. The short answer is – absolutely! This is the best time to buy a home. However, I am not doing you justice by giving you a simple answer. My job is to assist you and educate you, as much as possible, about the real estate market. This is one of the many advantages of working with an experienced Realtor, who does not only help you get you the best deal, but also educates you as to why you need to purchase a home as soon as possible.
As we all know, many times, people have a misconception that they should wait longer and see if the market will depreciate. Also by this time they will have enough money for a down payment. Yes, it may be true that sometimes you need to save for a down payment. If that is the main reason, then you have no choice but to wait because you need at least 3.5% down payment to purchase a home. However, if you want to wait because of the speculation of depreciation in the market, then I think, in my professional opinion, it may be a mistake. You see, there is no guarantee of an interest rate staying low and there is no guarantee of the price going down. However, the fact is that the interest rate is lowest in decades and you can save thousands upon thousands of dollars in interest over a period of even 7 to 10 years of occupancy.
There is a tremendous amount of long-term savings for you if you purchase your home over the next few months. That is obvious, because you will definitely save money with a lower interest rate.
Now, if you wait and the housing prices continue to move upward even just 5% a year, then that is quite a bit more over a period of only 2 years. For a $150,000 home, you will be paying $15,000 more at 5% appreciation. I am not talking about just the appreciation of 5%, but also you lose a tremendous amount of tax benefits.
This means that if you paid $8,000/year in interest for your home, then you don’t have to pay the income tax on $8,000. This amount becomes a tax-free money for you.
If you are at a 30% tax bracket, you save up to $2,400 in tax. For 2 years, this is equivalent to $4,800. This is a lot of money.
Remember, when you rent, there is no income tax benefit for you at all. This benefit goes to your landlord.
Now, if you wait and the interest rate jumps from 4.5% current rate to 7% in the next 2 years, you will be paying higher each month plus a more costly payment for the same home due to appreciation. So, in a nutshell, based on a $150,000 home over the next 2 years, you can potentially save $15,000 in appreciation and $230/month. The interest rate savings will be $5,520 for 2 years. The income tax savings will be equal to $4,800 in a couple of years, too. All these will be equivalent to savings of $25,320 over the next 2 years, not to mention the pride of having your own and the freedom from the landlord. That is the ultimate American dream, home ownership.
I would advise you to purchase now than later and enjoy the benefits of owning a home!
Please take note that the above figures are for the purpose of illustration only. Please check with your tax consultant. Your situation may be different.