TOM & CYNDEE
BROWNER - CRS,
ABR, GRIQUAD CITIES REAL ESTATE WITH RE/MAX
SERVING THE ENTIRE IOWA AND ILLINOIS QUAD CITIES ............................................................
DAVENPORT - BETTENDORF - ROCK ISLAND - MOLINE AND SURROUNDING COMMUNITIES
TOM & CYNDEE
BROWNER - CRS,
ABR, GRI
BROKER OWNERS OF RE/MAX BI-STATE - SERVING IOWA & ILLINOIS
1-563-388-0008 Office - 1-563-388-0083 Fax - 1-866-388-0083 Toll Free - 1-563-570-7629 Cell - 355-1616 Home
Have a question? The answer is just a call or e-mail away. Contact us at tom&cyndee@quadcitiesrealestate.com
We are both Accredited Buyers Representatives (Certified Buyer's Agents) we know you want to make the best decision. You want the best home possible for your investment. We know the market, and we work at your pace and not ours. We will guide you through all the forms, take you through the first time buyer programs and/or financing, inspections and explain everything each step of the way. We take care of all the details and problems before they become a problem to you. Call us on our private line at 570-7629 at RE/MAX BI-STATE or Contact us at tom&cyndee@quadcitiesrealestate.com - LOOKING TO SELL? Check out the services an Certified Residential Specialist can mean to you.
Our Goal is to provide you with the most up to date information and Exemplary Service at all times. Homes are an important decision and a long term investment. When Your Money Matters, you need and deserve the most competent professional help available. We strive to always be on top of the market and to further our education's, that we may be knowledgeable to give you the best service and advice at all times.
SHALL I BUY NOW OR WAIT
I have heard this question at least a few hundred times. In all of these cases, it has only been beneficial to the buyer to wait a few times. It is so rare I can even remember the details of why waiting made sense at the time.. One was getting an insurance settlement and due to their limited income, waiting allowed them to get the larger home they wanted. With this huge increase in down payment, they could qualify for the payments. In another case, the husband was getting a promotion, a very large raise, and a bonus. So they also would qualify for a larger home after he got his bonus and raise. We waited about six months for his better position to materialize. I also had two couples that where receiving an inheritance, and they also had good reason to wait.
However, for the rest of you, waiting will cost you long term big bucks. Sure, you say, he just wants to make another sale. Perhaps this is true. I would never turn away a sale, who would? However, let's say that I am telling the truth. Perhaps I can prove my point to you.
I often hear the claim that buyers just want to save a little more money. This is often true, because many would be buyers are out there looking before they have saved any money. They are often driving their house payment, or have fallen into the credit card trap where the rent, payments, student loans and other debt almost equal income. For these potential buyers, home ownership may be a long way away unless they change their habits. Sometimes we can help by sitting down with the buyers and by going over their finances, we can propose a budget and give advice that will allow the potential buyer to become a home owner. The service is free and available to any potential home buyer.
Instead of waiting to purchase their dream home, they may have to settle for a starter home and use the equity from it to buy that dream home later. I say this from personal experience, and the realization that most people spend what they earn. To expect anyone without a huge promotion or raise to save more tomorrow than they historically have saved in the past is a pipe dream. I have seen fifty year old people finally buying their first home with minimum down and with a first time buyers program to assist them. I have also seen the same faces over five or six years going through homes and dreaming of the time they can buy. These are often very nice people, hard working, solid jobs, just can't save. Meanwhile, the home they wanted moved up in price beyond what they can buy in today's market.
Let's take a $70,000 mortgage. These numbers will half on a $35,000 home or double on a $140,000 home. I have to start somewhere, so I will take a good second home or better starter home price.
Last year appreciation in the Iowa Quad Cities was 13.3%. This was not every home or every neighborhood, but the average increase. Some homes increased more and some less. Let's take 10% instead of 13.3% as out appreciation rate. That means a $70,000 home would go up $7,000. To put more down on a home later than you do today means you have to save that amount of money plus $7000. Otherwise the payment will be higher next year than it is this year. If you do not save the $7000, your payment will go up $52.59 per month on the same home next year. To qualify for this higher payment, the bank will want to see that your income went up $187.62 per month in the year or you had that much extra income on your home payment ratio last year. In other words, not only does the payment go up, but your income will have to still meet the bank ratios at the higher price. Sometimes, you may qualify for a home this year, but will not qualify next year if the home goes up and your wages stay the same.
Last year we could give home buyers 7.75 percent interest. This year thanks to Federal Government reserve raises, the rate is 8.25%. There are swings in the rates, but the trend has been higher. What happens is the home goes up next year the $7000 and interest rates go up another 1/2 percent. Doesn't sound like much, but the change would take a $525.89 payment on a $70,000 mortgage today up to $605.76 per month next year on the same home. A difference of $79.87 a month. This does not even consider tax considerations which potentially will increase the cost of waiting even more.
So what would be the cost of waiting one year without looking at tax savings?
Appreciation .............................................................................................................. $7,000.00 ------------------ Difference in Payment over 7 years at $79.87 per month if interest changes ----- $6,709.08 ----------------------------------------------------------- Total Cost of Waiting One Year - $13,709.08
Even if interest rates remain the same, and I doubt they will, the Cost of Waiting One Year will be:
Appreciation ----------------------------------------------------------------------------------------$ 7,000.00 ------------------------ Change in Payment based on appreciation alone ------.------------------------.----------$ 4,417.56 ---------------------------------------------------.-------- Total Cost of Waiting One Year - $11,417.56
To further illustrate my point. Lets pretend that you were in a position to purchase a home two years ago at $70,000, but decided to wait and continued renting. The cost then would have been 6.75% interest on a $70,000 mortgage for a standard 30 years; the payment would have been $454.01 principle and interest per month. Today that home is selling for more. The mortgage if you did not save any additional money would be more like $87,241.00 now at 8.25% interest over the same standard 30 year mortgage. The principle and interest payment is now $655.41 on the same house. If you own the home for seven years before you sell, the actual cost of waiting the two years will be:
Lost Appreciation ------------------------------------------------------------------------------- $17,241.00 -------------------- Change in payment based on actual appreciation and interest change, 7 years -$16,917.60 ------------------------------ Lost Principle reduction over 2 years ------------------------------------------------------ $ 1,543.99 ------------------------------ Increase in personal income taxes over 2 years, 28% bracket --------------------- $ 0
--------------------------------- Your cost of waiting this last two years ------------------ $35,702.59
Remember is you are a $35,000 shopper, this cost would be halved, or if you are a $140,000 buyer, this cost of $35,702.59 would be doubled . Did you save $35,702.59 in the past two years? If the answer is no, but you could have bought two years ago, you have cost yourself this amount by waiting.
Then consider taxes. For the small home buyer, thanks to the raising of the standard deduction, there will be no change. This is true even for our hypothetical $70,000 buyer. However, our $140,000 buyer in the 28% federal tax bracket you can add another cost over the two years of about $3112.31 in extra taxes. Their actual cost of waiting this past two years was more like $74,517.49.
I know money is not everything, but in my experience, the sooner you can get into a home, the better. You gain on the appreciation, principle reduction and lock in lower payments. This forced savings account prepares you with the money necessary to move up the housing ladder to a nicer home tomorrow. Without building equity, most people will not save the amounts necessary to be even with the market and will lose significant dollars in both the short and long term. Therefore, waiting makes little sense. At today's interest rates you will only save $7.51 per extra thousand dollars you save, if you save it. If you can save another $5,000 and the home goes up $7,000 in the same time period, you will only have to pay $15.02 more per month for the same home next year.
In my experience most buyers will not be able to save more than $2,000. People just spend what they earn. If you have any questions or would like to sit down and let us go over your finances in preparation of home ownership, give us a call at 332-9900 ext. 225 and set us a visit. No obligations or pressure, it is always your dime and your decision. The purpose of this was to make you think. Print this out and check it out with your accountant or attorney if you have any doubts. After you do, I believe you will agree that waiting usually makes no sense.