If you're a potential first-time buyer wishing you'd taken the home buying plunge while rates were low, it's not too late to dive into the market. In fact, even with interest rates on the rise, waiting to purchase a home could end up costing you money.

Here's why. Let's say you're interested in buying a house that costs $100,000, but you believe interest rates might fall if you waited one year to purchase. Would you really save by waiting?

Probably not. If you were to purchase today, principal and interest payments on a $90,000 loan (after a 10% down payment) would be $660.39 at 8.0% interest.

But if rates did fall over the next year, say by one-half percent to 7.5% interest, you would have lost money by waiting. Appreciation at even a meager 3% annual increase has now elevated the cost of the home by $3,000 to $103,000. That means that you'll need $300 more down payment for a 90% loan. And a larger loan could mean more closing costs plus a higher mortgage amount could make loan qualifying tougher. Don't forget that based on the type of home you wish to purchase, it might not be as readily available later especially if you purchase in a strong seller's market.

Financially, the bottom line is that even though your principal and interest payments would be $11.49 per month less with the lower interest rate, it would take you more than twenty-one years to recoup the $3,000 additional money it cost you by waiting. ($3,000 divided by $11.49 = 21 3/4 years.) That figure doesn't take into account lost tax benefits or even the value of the monthly rent you're pouring down the drain as a tenant. It's been said that if you're not buying a home for yourself, you're purchasing one for someone. Why let your landlord be the financial winner just because rates are edging up?

Perhaps you're one of those would-be buyers wanting to pay off debts before taking on a mortgage. While it's a very prudent undertaking, it may not make financial sense especially if your debt-load is not excessive for your income. The flexibility in today's extensive menu of mortgage programs allows credit-worthy buyers carrying significant debt a variety of ways to secure the type of loan they need, even if qualifying ratios are outside of the usual parameters. Loans include low-documentation, no-documentation - even stated-income loans where you state, but not prove, your gross monthly income.

There's one more piece to the home buying equation that first-time buyers should not overlook. It's your employment. Many buyers hesitate making their first home purchase because they're afraid of being downsized, right-sized, or otherwise having their income cut. But since lenders want to see a work history of approximately two years employment (which could include formal job training/education) it makes sense to purchase once that track record is established. It's true that purchasing a home is not for everyone. And for those who do, timing is important. But if homeownership is in your future, don't let fluctuating interest rates dampen your enthusiasm----or worse yet, end up costing you money by waiting to purchase.

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Published: January 31, 2000

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