Should You Wait for Rates to Go Down to Buy a Home?
It’s very common to wonder if you should wait for interest rates to go down before buying a home. It’s especially common today when rates are at 7%. They were at 3% a few years ago, and when you compare to 2022, it’s painful.
Looking at principal and interest alone…
A $400,000 30-year mortgage was $1,686 and now is $2,661.
A $600,000 30-year mortgage was $2,530 and now is $3,992.
That’s $12-18k per year down the drain!
So, you should wait, right?
No.
At least usually, that answer is no.
Why? Four reasons.
Rates aren’t going down fast anytime soon. This is because the economic data simply doesn’t give us indications this will be the case. The Fed is comfortable. Can we hope? Yes. But the longer you wait, the more you miss out on living in your dream home.
You are buying a home, not a mortgage rate. Keep this at the forefront of your mind. It might sound cool to have a 3% rate, but it's cooler to have a home you love.
Mortgage rates aren’t forever. Yes. It’s a 15-year or 30-year loan, but the average life of a loan is just a few years. People move or refinance. Think in shorter 3-5 year chunks.
You are throwing money down the drain renting that home.
If you can’t afford a home at the current rate, that’s understandable. But if you are renting, I encourage you to buy a smaller house or a home further away so you can start building equity and be better prepared to buy a home at a higher rate.
If you already own a home and want to move, you need to consider (at least) two things.
Can you keep your home and rent it out? I recommend this all the time. This way you keep your current low rate and benefit from rental income as well. It’s a win-win.
What do you value the new home at? Is 500 extra square feet worth $500 dollars a month? Is a quiet wooded lot worth $750 a month? Is a fenced-in yard with good neighbors worth $250 a month? Etc.
Summary: No. Don’t wait. Unless you can’t afford it!
Note: This is a summary from my latest YouTube video on this question, which you can find below. I’ll oftentimes write up summaries of them here for those that prefer short and sweet a few days or weeks after the video releases. Subscribe and share!