Snagging a house at the bottom of the market, or so you think, may not always be the best money saver. When home prices are low like they are now in many American cities, I know it’s very tempting to wait even longer, in the hopes that prices will decline even further. What most homebuyers don’t realize is you have to balance a low price and bottom of the market with a low interest rate. Rates are at historic lows, which only means one thing - they WILL go back up.
So if interest rates are on the rise but the market is heading a bit lower, waiting another six months for a dropping market to sink lower still may actually cost you in the long run.
For example, if you buy a house for $450,000 with 20 percent down, you will have a $360,000 mortgage. With a low 5 percent interest rate, your monthly payment of mortgage, principal, and interest would be $1,932.56. However, if you wait six months in the hopes of getting the same house for $10,000 less at $440,000, thus with a mortgage of $352,000, but the interest rates have climbed to 6 percent, your monthly payment is now $2,110.41—costing you an additional $72,157.82 over the course of the loan.
In a buyer’s market, there are more opportunities for negotiations, but taking the plunge and making an offer is an important step. If you find a house you love, put your bid in and negotiate. Once a home is priced to what the current market will bear, buyers will make offers and houses will sell no matter which direction the market is headed. Don’t let the house you think is right for you sit while you wait for the market to sink. Another buyer might step in to make an offer.
Remember: the bottom of the market does not always coincide with the bottom of your payment.