Imagine this scenario on a FHA purchase – a buyer purchasing a home today at $450,000 with 3% down. At today’s rate of 6.375%, the principal and interest payment (including the 1.50 up front MI financed) would be $2764.04. Down payment would be $13,500.
versus
A buyer holding off on their dream purchase in hopes of the market declining another 5%, or in comparison to above, the sales price now being $427,500. That’s nice but what if interest rates were to increase a ½% to 6.875%. The principal and interest payment would be $2764.98 ($0.94 higher). The down payment would be $12,825 ($675 less).
Notice the alternative in this scenario is limited to a 5% loss, and even that possibility is debated.
Let’s run the same alternative with a $100,000 discount, not a $22,500 (@5%) discount. Further, let’s say the interest rates go to 7%.
At that point, the downpayment will be $10,500, and the monthly – even with the higher interest rate – will be $2,315, a larger percentage of which will be eligible for tax writeoffs.
– Who’s to say that $450k home won’t decline lower than $350k?
– If I’m saving $100k on the principle and $2,500 on the downpayment, what the hell do I care if the seller doesn’t give me concessions.
– If I’m a renter I will have saved $6,200+ dollars in the last year for housing expenses PLUS the $100,000 decline by not being trigger happy. Go ahead, call me a renter; having profited by $106,200 that I didn’t lose I can afford it.
– As a home buyer, I’m not interested in losing $100k or more just so you can clear your Beemer payment this month. While we’re at it, I should be questioning YOUR patriotism due to your feeble attempts to prolong an adjustment cycle that would be better left alone.
