The Price of Waiting

For most Americans, owning their own home is a top priority. The simple facts are that being in your own home provides a more stable, secure environment and the lifestyle most people desire for themselves and their family.

The Dollars and Sense

However, home ownership is also a major financial factor for most of our clients. The purchase of a home is often the largest single investment most people will ever make, and having your home paid off has provided a better retirement for millions of Americans.

Many of my clients wonder if they should wait and save up enough money to make a larger down payment or if they should buy now with a smaller down payment.

The reality is that for most real estate, time is a major factor for considering the best strategy. This is especially the case in state our of Utah that continues to experience great growth and long-term appreciation in the value of homes. What you will find with a careful analysis is that time generally works against you if you choose to delay your purchase simply to save more.

Crunching the Numbers

To better understand this reality, let’s take a look at a real example for anyone considering a home purchase in Utah. First, let’s look at actual historical housing data for a real home in Draper, Utah, that sold in 2010, 2013, and 2015, gathered from the WFRMLS:

If you were the buyer who bought this home in 2010 in a normal transaction, you would have put 3.5 percent down. This means you had $13,282 in a down payment, leaving you with a monthly loan payment (P&I) of $1,696.

Moving forward to 2013, you would be a happy homeowner who now owns a home worth $425,000 (an increase of three times your original down payment). You now owe only $346,070 or 81% of your home’s value (even if you only made the minimum payments). This means you could now consider a refinance and eliminate the mortgage insurance from you monthly payment. Also, this doesn’t address the tax savings you have enjoyed and what you might be paying in rent if you had not purchased.

The story gets even sweeter if you look at the situation in 2015. Along with the other benefits above that you have enjoyed, you now owe only

$331,233 and have a value of $462,000. That is a whopping $131,000 in equity, ten times your original down payment. That 28 percent equity means you could actually pull cash out of a refi if you desired.

The Price of Waiting

Of course, not everyone was smart enough to buy in 2010. Let’s assume a person living in Utah decided they wanted to wait and save until they had a 20 percent down payment to get a lower rate and avoid mortgage insurance.

If they took 5 years to do that, they would now need $92,400 to buy a house valued at $462,000 (that they could have purchased for $379,500 just five years ago). Even if you had $75,900 five years ago for a 20 percent down payment, you would have to save an additional $16,000 just for the down payment today. Now, that careful saver will actually have to pay $82,500 more for the home, have a larger down payment, and probably have a larger monthly payment.

While everyone’s situation is different, this analysis shows why time is the factor that often makes it smart for our clients to purchase now instead of waiting to move into their own home after they have saved for 5 years for a 20% down payment. If you have any clients who are on the fence and have decided to wait to buy a house please call me. I have multiple professionally designed marketing material we can share with them to help them understand the true cost of waiting.

While everyone’s situation is different, this analysis shows why time is the factor that often makes it wise to purchase now instead of waiting to move into your own home as soon as it is practical for you.

Check out the math behind making the decision to save up or #buyyourhomenow.