Two factors that attract house buyers are, low interest rates and a decline in house prices. It is important to determine which factor holds more significance than the other. Low interest rate can affect monthly payment. Proper information will help make sensible choice.
Monthly installment
Interest rates greatly influence total cost as well as monthly payment of the house. Let’s suppose an ordinary one-bedroom condo is worth $50,000. After 10% down payment, the amount left to be paid is $40,000. Interest rate at that time is 7%. In 30-year period, monthly payment is going to be $266. But, you are not satisfied with the cost and interest rate. So, you make up your mind to make a purchase later on.
After six months period, interest rate decrease to 5% and the price of the condo is $60,000. After down payment, $48,000 will remain to be paid by the same duration i.e. 30 years. Now your monthly payment will be $257.5. Compare it with the previous cost that was $266 per month. Because of a decline in interest rate, monthly payment is reduced by $8.5. Similarly, you can calculate for any mortgage amount. This is just an example. However, it is quite hard to predict interest rates and house prices. No one can assure you of a drop in the near future.
Down payment should be reasonable
Some people may think paying a hefty initial amount while purchasing house is a good idea. It can reduce their monthly installment. But fact is, this may not be as simple as you think. Even an extra $5,000 added into down payment can upset your budget. Your other expenses will not be met easily.
Consider low-cost areas
For those, who are unable to meet increasing house prices and interest rates, there is one solution for them. House prices vary a great deal from one location to another within the same city. Don’t compare rates from city to city or state to state. It will not help make a smart decision.
Search well in your neighborhood. After some good effort, you can find the same-sized condo in considerably less price. This is true of those areas where prices are fairly lower than others. The reasons can be many. Places far from commercial zones cost you less than those near big malls, hospitals and main avenues. If you have limited budget, go for a house in that area where prices are affordable.
HOA fees
Homeowners Association fees are usually higher for expensive homes. It is because they offer many facilities such as, lawn and condo maintenance, pools, tennis courts, club houses and private streets. Don’t forget to ask the price for HOA fees. It can be less if the services are fewer or the price of the house is too high.
Bottom line
Before making a decision to buy home, think of these important factors: down payment, monthly installment, savings for emergency situation, home maintenance, furnishing and repair. It will not cause any trouble in the long run and make you an intelligent buyer.
