When is the best time to buy a home?
When is the best time to buy a home? Today’s interest rates are low - making your borrowing power very high. Imagine, protecting your financial security AND getting an upgrade to the lifestyle you want.
Debt-to-Income Ratio
Mortgage Lenders look at your debt to income ratio to decide how much of a monthly payment they are comfortable with you spending. The DTI formula is simple, how much you spend each month on housing and debt divided by your pretax monthly income. A good debt to income ratio is different from lender to lender, but a healthy debt to income ratio is said to be under 35%.
A mortgage lender uses your Debt-to-Income Ratio to determine your buying power, or how much they’re willing to let you spend each month on a monthly payment.
Let's say your lender approves you for a mortgage that comes out to $1000/mo. You need to try to find a home that will stay under $1000 per month.
Example A: Home at 204k @ 2.9% interest = 307k over the course of the loan, or $852 per month.
You can afford a 204k home right now. Over the course of the loan, you'll spend $103,000 in interest.
As rates start to go up, your borrowing power decreases:
Example B: Home at 180k @ 4% interest = 309k over the course of the loan, $852/mo
You're still inside your $1000/mo allowance, BUT your borrowing power decreased from being able to afford a 204k home to a 180k home. Over the course of the loan, you'll spend $129,000 in interest - more than you would for a more expensive home at a lower interest rate.
As rates continually go up, not only does your borrowing power decrease, but your interest paid over the course of the loan starts to skyrocket.
Example C: Home at 180k @ 5% interest = 347k over the course of the loan, $960/mo
You're barely inside your $1000/mo allowance, AND you're spending $167,000 in interest - that's almost the cost of the home in the first place!!!
We believe that you should be on your own time to decide when to buy a home, but right now is a GREAT time to take advantage of today’s low interest rates to go buy your forever home while your borrowing power is so high, OR go buy investment Real Estate.
