Should I Buy a Home This Fall?

Fall 2022 Edition

If you’re wondering if it’s the right time to buy a home, you should know you have an opportunity to grow your wealth, stabilize your expenses, and benefit from more options for your home search this fall.

Should You Put a 5%, 10%, or 20% Down Payment on a House?

​Give Yourself a Cushion

Let’s think of a scenario – say you put all your savings (or most of it) into your new home. You would have no room for a cushion or buffer if anything would go wrong. If something did go wrong, you would then have to finance again and put yourself in a worse position.

Instead, you could have put just 10 percent down for your home, have a small PMI payment, and still have a bit of a buffer for anything that goes wrong. Plus, it’s important to remember that the PMI will drop off once you hit that threshold of 78% percent of the original value of the home. Having that small amount of PMI might be worth it to you to have that security of not spending all your money.

Waiting Could Cost You More

Okay, maybe you’re thinking, “That’s great and all, but I don’t want to pay PMI, so I’m going to wait until I save up 20 percent.” We hear so many clients say they want to wait or that they don’t have 20 percent yet, but meanwhile, the market starts to get away from them. People that we’ve talked to a year or two ago that thought they wanted to save 20 percent because they had it in their mind, they did not want to pay PMI! Well, they’ve now lost out on 50, 70, or even 100 thousand dollars or more in equity because of home appreciation.

So, would they have been better off buying a home with 5 percent and paying a little bit of PMI to gain 100 thousand or more in equity? Yes, they would have been better off doing that for sure.

A Lower Down Payment Could Save Money for Home Improvements

Another example where paying PMI and doing a lower down payment makes more sense, is if you want or plan to do improvements to the home. You might want to take that extra money and make sure you have the cash to do what you want to do to the home now, versus getting into a home equity line of credit with a higher interest rate or having to finance for those items later.

Paying PMI Can Help Consolidate Debt

It’s no secret that most people have debt outside of a mortgage – they have credit card debt, a car payment, or something else that’s a bigger monthly payment. So, let’s just say you have $20-30k of debt – you could take the additional money you currently have and pay all that debt off versus putting more down on your home.

For some people, this might make more sense because, right now, you can still borrow at historically lower rates than most rates on other debt payments. Having that low rate and financing a little more money with some PMI on an appreciating asset (your home) is usually a better way to spend money versus having debt which is a depreciating asset, or no asset at all. A lot of the time these monthly payments are credit card debt on things you already bought, and you don’t even know what those things are anymore!

So, Should You Wait or Buy Today?

Well, it really is an individual choice, however, we highly recommend having an advocate and advisor. Here at The Oddo Group, we try to be that resource for you so that we can come alongside you, lay out the options, the pros and cons, and help you make an educated decision.

Many times, doing the lower down payment today to get into that home and ride up the appreciation, is a much smarter choice than waiting to save for 20 percent.

Get in touch with us today to learn more about which situation is right for you!

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The Cost of Waiting to Buy a Home in the Denver Metro Area

So, what are we hearing as a result? We’re hearing a lot of “I think I’m going to wait because my money for down payment was in the stock market” or “I have less money now, and interest rates are going up,” and “I think home prices are going to come down, so I’ll just wait.” If this sounds like you, then let’s play out some of these scenarios.

Lower Home Prices May Not Mean Lower Monthly Payments

Let’s assume that home prices come down, which they’re not predicted to do any time soon. In fact, they’re predicted to go up by at least 6 percent this next year, but let’s just say they come down a little bit.

If home prices come down, but interest rates continue to climb, you have not gained anything or really saved yourself money. The problem is, you’ve not only not gained any equity, but you could be paying more per month when that interest rate goes up. If that interest rate goes up half of a percent, one percent – that’s a big deal for mortgage payments. Plus, even if home prices do decline a little, that decline won’t really upset your monthly payments.

So, if you’re waiting for those home prices to come down, it could be a big gamble to take and that timing may not work out as planned. Plus, we always say…when’s the best time to buy a house? When you’re ready to buy a house!

Rent Prices Will Almost Always Go Up

If interest rate numbers are keeping you from purchasing your home, just remember that you don’t buy an interest rate, you buy a payment. Don’t get hung up on the scary numbers, because we don’t want to assume that those numbers are bad for your financial situation. Instead, let’s look at the numbers in more detail instead of an arbitrary “pie in the sky” number.

For example, if you currently rent your home, know that rent is basically having a 100 percent interest rate. You’re literally putting money in your landlord’s pocket! At least when you purchase a home, you get to build equity as your home appreciates in value. As you pay down a mortgage, your home value goes up, which creates equity, which, in turn, creates money for you that you don’t create when you’re renting.

So, while, yes, rates have gone up a little bit – home values are also predicted to go up. Plus, if you look at rates historically, we are still in all-time lows as far as interest rates go. In short, waiting is probably not the smartest thing to do in an upward rate environment, especially when home prices are also predicted to go up. Just know rates going up is not going to be your friend.

Is Now the Right Time to Buy for Me?

We suggest you get in touch with us, look at your finances, let’s get a strategy going, let’s look at the numbers, let’s see what your payment’s going to look like, and get you into a home faster. Maybe you’ll put less down and have a little bit of a PMI payment, but you’d still be outpacing inflation and getting out of paying rent (which will go up every year or whenever that lease comes due). This may not be the case for you, but we have to look at the numbers to make sure.

Give us a call, we’d love to be your advisor and help you figure out if it’s the right time to buy or if it’s not, that’s okay too. But let’s get you ready so that when you want to buy, you are ready to go.