To Buy Or Not To Buy?
Are you thinking about buying a home but aren’t sure if you should? In this video, I’m going to help you decide whether to buy or not to buy. We’ll look at all the factors that go into your decision as well as the numbers so you can see whether buying a home is right for you.
Making Your Decision
When deciding whether you should consider buying a home or not, there are a lot of factors that go into that question. Why are you thinking about buying a home? Are you going to be raising a family there? Is it something that you want to be able to upgrade, change, or paint in whatever color you want? Or maybe you have animals that you love, and rentals are a little more difficult to find.
These are all the factors that have to be considered. We are seeing news stories and economists on all sides of the equation say that housing is going down and we are in for a correction. Others are saying that it's stable, while others are saying it's going to continue to increase from 2023 to 2025—though more modestly than we’ve seen recently.
To help you decide, I'm going to review why you should buy so you can see if it's the right thing for you.
Renting Vs Buying
One of the things that I take into consideration is how long you are planning on staying in the home. The second thing you want to look at is what that home payment would be versus a comparable rent. If you're planning on something very temporary—maybe one to two years—I would suggest that you hold off.
If you're looking at a home with a $3,000 monthly mortgage but you could find a rental that's comparable for $2,000, renting may be your best option for now. However, if the $2,000 rental is not comparable and you really need more, that's something to discuss further. These are the two main considerations that would come into play if I was consulting with you.
When it comes to real estate, perspectives have changed. It's important to understand how a lot of us listen to the media to some economist saying scary things about the market. We let all of that become what I refer to as static—a bunch of noise that puts us into a deer in the headlights stance. When this happens, we don't always think through everything that we should.
What I would ask you to do is consider this: six months ago, would you have been happy if you could have gotten an offer accepted? I know the rates were a lot lower, so you may answer that you would have. However, let's take all the factors into account.
Six months ago, homes were selling like hotcakes and there was very little inventory. People were doing one of a few things. One, they were settling for a home that wasn't their top or even second pick. While it may have met some of the basic criteria, it didn't meet all of their criteria. They were also paying above list price and, oftentimes, above appraisal. But those days are gone.
Buying Down Your Rate
Thankfully, you now have a wider selection of homes on the market, so you're able to buy the home at list price or below. I'm seeing some homes go for 97 cents on the dollar, while a lot of them are still in the 98-99% range. That said, you may get a $500,000 house for $485,000, which was not happening at all six months ago.
Of course, you could have gotten a rate in the 3s or 4s, but let's turn that on its ear a bit. If you were willing to pay over on a home—such as $520,000 for a $500,000 home—that extra $20,000 was coming directly out of your pocket. A lot of people are unaware that if you talk to your mortgage lender, you can often buy the rate down for two points. On a $450,000 loan, that's $9,000.
Buying the rate down as much as 1% of a 5.25% rate becomes 4.25%. Some lenders will let you buy down even more, though some limit how much you could buy down. However, if you're willing to pay $520,000 and come up with $20,000 out of pocket, you're now in a situation where you could buy that $500,000 house for $485,000. You could use the $9,000 to buy the rate down to a rate that was pretty close to what it would have been.
You’ll end up paying less for a house, will have a similar mortgage payment, and you get to keep the cash in your pocket that you would have spent just six months ago.
Timing The Market
You may still be wondering if the market is going to correct and whether you should wait to buy. That really depends on if you believe in your ability to time the market. I'm a real estate professional and I don't necessarily believe in my ability to time the market myself. Otherwise, I would have bought a load of homes in 2019. I would have leveraged every dollar I have to do that and sell them all in 2021.
To put this in perspective, only 17% of mutual fund managers beat the S&P 500 in the last 10 years. That drops to only 6% over the last 20 years—and that's their full-time job. So if you were thinking about timing the market, it is important to realize that any losses that may occur (which is complete speculation) are going to occur on paper.
A Wise Investment
If you're in for 5-10 years, there's never been a market that hasn't come back within that time. Additionally, if you're planning on staying in the home for any amount of time to make it your own, get that yard for your kids and your dog to play, and do whatever it is that was motivating you to be a homeowner, you can do that and feel confident. Even if it does dip, it's on paper and it will come back.
On the other hand, if it continues going up as many economists are saying, you'll be really happy that you bought when you did. That equity will be in your pocket and not in your landlord’s. If you have any questions, feel free to reach out to me and I’ll be happy to help. Don’t forget to subscribe to my channel for more real estate tips and hints, and stay tuned to see what I feature next!
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