Recently, one of my agents was working with a young couple to help them find their first home. Buying a home can be an emotional roller coaster and buying your first home is typically the biggest financial purchase a young married couple will make. They constantly worry whether they’re making the right decision and tend to second guess themselves.
After getting them pre-approved for a loan with our lender and then touring a few homes, they began to get cold feet. They told us, “There just isn’t anything out there that we’ve fallen in love with, so we are thinking about staying in our apartment another year and continuing to save money.” My agent did a wonderful job of questioning their reasoning behind this and then sat down to show them some numbers.
They’ve been setting aside about $500 per month while living in their apartment. If they sign another year lease on their apartment and continue to save $500 per month over the course of the next year, they’ll have another $6,000 to put down on their new home in 2020. There’s just one problem. During that same 12 month period, the price of their new home will rise $10,000. Right now, home prices are rising faster than the amount of money they can actually save. They’ll be losing money.
Not only that, interest rates may rise as well and add another $100 per month to their monthly payment. They’ll be buying less home and it will cost more money in one year. Plus, they will miss out on the tax deductions versus using that same amount of money to pay rent.
After showing them these numbers on paper, it just made perfect sense to keep looking for a home to buy now. If the market keeps rising, in a few years they’ll be way ahead.