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Salt Lake City, Utah
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Should I buy now or should I wait?
Posted at Salt Lake City Utah Real Estate Guide by Dan Walker
Wednesday, December 31, 2008
Categorized in: Salt Lake City UT Real Estate
Tagged with: homes for sale in salt lake city ut

Should I buy now in Salt Lake City? Or wait? Is now the time to buy a home?

Should I buy now? Or should I wait for a while? Will prices come down? Will interest rates go up or stay down? These are the questions buyers here in the Salt Lake City Utah area and all over the country are asking right now. If we examine our interest rates, and the cost of having a loan and compare that to what we might possibly buy a home for, the answer becomes clearer.
 
For our exercise, lets assume some numbers. First, our loan amount will be $200,000 for a fixed 30 year term with a total of 360 payments. Down payment requirements as of January 1st are now 3.5% for an FHA loan and 5% for a conventional loan.
 
Let's assume we're doing conventional financing, and our downpayment will be 5% of the purchase price.
If our loan amount is 200,000, that means our purchase price will be $210,526. A 5% down payment is $10,526, making our loan amount $200,000. Our property taxes currently are $1500 annually or $125 per month, and our hazard insurance premium is $450 annually or $37.5 per month.
 
NOTE: These payments do not include PMI or private mortgage insurance. PMI will be required on any loan where the borower has less than a 20% equity position on the purchase.
 
Here we go....
30 year fixed Conventional loan...
Term 30 30 30 30
Interest 5.00% 5.50% 5.75% 6.00%
Loan Amount $200,000.00 $200,000.00 $200,000.00 $200,000.00
Annual Tax $1,500.00 $1,500.00 $1,500.00 $1,500.00
Annual Insurance $450.00 $450.00 $450.00 $450.00
         
Monthly P&I $1,073.64 $1,135.57 $1,167.14 $1,199.10
Monthly Tax $125.00 $125.00 $125.00 $125.00
Monthly Insurance $37.50 $37.50 $37.50 $37.50
Total Payment $1,236.14 $1,298.07 $1,329.64 $1,361.60
         
Total Interest 5 years $48,076.06 53,055.89 $55,553.12 $58,054.78
Total Interest 10 years $91,521.32 $101,351.34 $106,297.78 $111,263.58
Total Interest 30 years $186,511.57 $208,808.08 $220,172.46 $231,676.38
         
         
Term 30 30 30  
Interest 6.50% 7.00% 8.00%  
Loan Amount $200,000.00 $200,000.00 $200,000.00  
Annual Tax $1,500.00 $1,500.00 $1,500.00  
Annual Insurance $450.00 $450.00 $450.00  
         
Monthly P&I $1,264.13 $1,330.60 $1,467.52  
Monthly Tax $125.00 $125.00 $125.00  
Monthly Insurance $37.50 $37.50 $37.50  
Total Payment $1,426.63 $1,493.10 $1,630.02  
         
Total Interest 5 years $63,070.12 $68,099.48 $78,191.46  
Total Interest 10 years $121,248.58 $131,297.37 $151,552.91  
Total Interest 30 years $255,088.98 $279,017.80 $328,310.49  
It's a no brainer, the best time to buy is when the interest rates are down, and home prices are down. What is happening right now in the Salt Lake City real estate market is that many buyers are sitting on the fence, wondering whether home prices will come down, how far they'll drop, and when they'll drop. 

If we are currently approved for up to $215,000 and the interest rates are 5.5%, we're looking at atotal monthly payment of $1298.07. If we miss the boat, and on't lock our loan, and rates go up just 1%, to 6.5%, we now have a monthly payment of $1426.63. That is a monthly increase of $128.56. For buyers who are already buying at the top of their comfort range, that increase may put that particular home out of their reach. Now maybe we're thinking home prices are going to drop by say 5%. That would be a 10,000 drop, or maybe 10%, which would be 20,000. Let's look at what it could cost us in interest waiting for a home price to drop.
 
Most first time home buyers will become move-up buyers within 3-7 years after purchasing their first home. After paying on your mortgage for 5 years at 5.5% you will have paid $53,055.89 in interest, and if you missed the boat, and got stuck with 6.5%, you will have paid $63,070.12, plus your house payment went up $128.56. Now, if you have had some financial difficulties since buying your first home, and are not able to move-up at five years, and have to wait until the tenth year to move up, the interest become even more astounding. Interst paid at 5.5% at year ten is $101,351.34, and at 6.5% is 121,248.58. Interest paid is money you paid to the bank for loaning you the money to purchase your home.
 
When you consider these numbers, is it really worth the risk of losing the great interest rate to save a few thousand dollars on a home? Unless you are looking at values decreasing by at least 10%, it just doesn't add up. For first time home buyers, these numbers are particularly critical. Why? Well, if you have $1300.00 max for a payment in your budget, and interest rates go up, that means you can no longer buy a home in the price range you were looking in.
You will have to "downgrade" the homes you are looking at, and that can become very frustrating very quickly if quality homes are in short supply for that price range. If $1298.07 was the max for your monthly payment, at 5.5% you could buy a home up to about $210,000. If the interest rates jumps up to 6.5, in order to keep that same payment you would only be able to borrow approximatley $180,000, which equates to a purchase price of about $189,000. That is a whopping $20,000 difference in what you could qualify for.
 
To see ALL the current Salt Lake City UT area real estate listings visit http://www.athomeutah.com

 

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