Home Buying in Bergen County>Question Details

Lee, Home Buyer in Bergen County, NJ

Buy sooner or later?

Asked by Lee, Bergen County, NJ Tue Sep 17, 2013

We are looking to buy our first home in the next year or two. Our original plan was to buy in the Spring of 2015 but with mortgage rates picking up again, we don't want to miss out on a good deal.

Should we buy with only 8-10% down in Spring of 2014 or wait til 2015 and buy with 15-20% down?

Background info:
Household income: $110k
Desired location: Bergen County, NJ
FICO: 760 and 800
No debt (paid off student loans this year)

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BEST ANSWER
I am going to expand on what Larry posted -

In my first post, I referenced my son...........he and his wife actually did go with a 7/1 yr. ARM, which offered the safety of 7 yrs with a fixed rate (the 10 yr didn't offer enough savings to make a difference).
The savings equal slightly under $250 a month....just under $3000 a year.......since he is buying a town home, his expectation is to move to a single family home within that 7 yr span.

The savings (compared to a 30 yr fixed) over 7 years, will equal close to $21,000............so, since plans can change......even if he stays for an extra year or 2, and the rates are higher (nothing says they HAVE to go up and stay up) there is a 2% cap on the yearly increase, so they will still be ahead even if they remain and the monthly payment increases.

I suggest you work the numbers using the worst case scenarios and see what those payments look like

If they were buying a single family home with plans to stay indefinitely, I probably would have recommended the 30 yr fixed, which, even at 4.5%, is so low compared to what rates used to be.

And I agree with Larry - as a first time buyer - be conservative when determining your sale price - even if you CAN afford to pay more (even if you are approved for more) -imo, you should look in the lower end of your range.
Owning a first home can be an eye opener.................whatever you think it will cost - it will cost more!
The first time something big breaks and you have to pay to fix it......or you simply want to take a vacation, you will be happy you didn't stretch to a much higher number.
1 vote Thank Flag Link Wed Sep 18, 2013
Others have already suggested speaking to a lender and running numbers, but my take is slightly different and I'd suggest buying now rather than postponing another 18 months.

Here's why: to begin with if you can put down between 5% -10% there are mortgage programs out there that would permit you to pay 3/8% over market rate and avoid PMI completely and I firmly believe that by 2015 interest rates will in fact be more than 3/8% higher than they are today.

Another option is to take a 7 or 10 year ARM which will get you a much lower interest rate now and the rate will be locked for the first 7 or 10 years. Statistically you're unlikely to be in your first home more than 5-7 years so the fact that after the first 7 0r 10 years the rate will start to go up shouldn't matter.

Obviously the more you can put down the lower your monthly payment but as this is your first house I'd suggest living well below your means anyway. If a mortgage lender tells you you can afford up to $XXX, my advise would be to look for homes that you can buy for 10-15% less than what you were told you could afford.; you'll be much happier in the long run.

Best of luck and happy house hunting.
1 vote Thank Flag Link Wed Sep 18, 2013
thank you for the "best answer" - happy to have been of help!

Stay tuned to the 2PM (today) Federal Reserve announcement - if they begin to scale back, interest rates will most likely creep up - this may help you make that decision whether to move sooner rather than later!

All the best, and good luck with your move - whenever it may be!
0 votes Thank Flag Link Wed Sep 18, 2013
well, as a follow up - the Fed surprised everyone by announcing they would not "taper off" and would continue to keep buying those bonds, so the status quo will remain - for now. I still think you're better off buying sooner rather than later as eventually those rates will start to climb. Good luck!
Flag Thu Sep 19, 2013
Hi Lee,
The question might be How much will the PMI monthly fee cost you now verses waiting a year if interest rates were to go up say just 1% point? I do have a great lender that can discuss these differences with you and the financial strategy. He also has some creative solutions on minimizing the PMI. Contact me if you want this source...no obligation.
Example of the effects on a monthly payment:\
Rate as of May 1st:
Purchase Price - $500,000
Mortgage - $400,000 Program: 30 year fixed CONV Rate: 3.5% Points: 0 Lock: 60 Days
$1796 – P&I
$80– HOI
$833 – Taxes
$2709 – Total

Rate as of July 11th:
Purchase Price - $500,000
Mortgage - $400,000 Program: 30 year fixed CONV Rate: 4.5% Points: 0 Lock: 60 Days
$2026 – P&I
$80– HOI
$833 – Taxes
$2939 – Total
-An increase in the monthly payment of $230 per month in 9 weeks on a $400,000 loan amount.

The other aspect to seriously consider: Because activity has substantially increased and inventory is at a low point, the demand has driven median sale prices up. I have had buyers in early Spring 2013 quite literally watch their buying power diminish if they hadn't committed by the summer. Waiting yielded a higher interest rate and less home within their price point.

Most agree interest rates will only be going up. The only question is by how much

Click on my photo which will take you to my profile and Client Testimonials.
I can help you find a lovely home when you are ready.
Best,
Chris Gubb
0 votes Thank Flag Link Wed Sep 18, 2013
I just went through a similar discussion with my son and his wife, who were planning on moving out of the city to the suburbs next Spring.............well..last month....they came out just "to look" , and get an idea of what was "out there"................... and what do you know..........they fell in love with something and decided to buy now!!!!!
They are closing next month!

As it is, the 30 yr fixed rate has increased about 1% since last March....that was something that caught their attention....it seems to be hovering around the 4.5% range now.....but who knows for how long?

Your income and credit scores are all good.
I suppose the big question is........how much do you plan on spending?
Have you been approved for a loan?
Are you ok with paying PMI?

IMO, if the numbers work, I'd say buy sooner rather than later.........I don't see why waiting to have another 5- 10% to put down will make that much of a difference to the big picture.

Start looking when you're ready, and buy when you find something you love!

Best wishes!
0 votes Thank Flag Link Tue Sep 17, 2013
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