Did you miss the tax credit deadline? And does that mean you should put off your dream of owning a new home? Not necessarily – maybe waiting even paid off. A true apples to apples analysis would require taking into account many variables, however, I will make a simple argument that waiting until recently to buy a home might pay off better than receiving the tax credit.
Up until about the time the tax credit expired we were in a 5.25% to 5.75 % mortgage rate environment for an FHA thirty year mortgage. An eligible first time home buyer received an $8,000 tax credit and an eligible seller selling a home they owned for at least five years would receive a $6,500 tax credit. Good deal, but what about buying now. Well…
Interest rates have dropped, so let’s compare two loans with minimum down (3.5%), 30 year FHA loans on a $100,000 property. Mortgage A is at 5.5% (and gets a tax credit) and Mortgage B is 4.5% (and does not get the credit). In the first five years of making the loan payments, Mortgage A will cost $3,537 more in monthly payments and $4,795 more in interest than Mortgage B would, a difference of $8,332!!! If you hold onto the property longer, the savings can get dramatically bigger. The savings also are bigger if buying a more expensive property (an average home in Des Moines costs $160,000). If you looked at the entire 30 year life of the loan; the total interest on Mortgage A will be $100,749 and Mortgage B will be $79,522, a 20% difference!
Here is the point. We are in an environment of historically low interest rates and that can dramatically enhance the overall cost savings of buying a home. Fortunately, we also have relatively low prices and lots of selection, a triple home run. You haven’t missed the boat by missing the tax deadline. But interest rates will go up and that is one opportunity you do not want to see slip by.
If this was confusing, or made you go “hmmmm”, then talk to a professional who can help you go over the details, pressure-free. Call a Burnett Realty Realtor at 515.334.4900 or one of our loan professionals at Central Iowa Lending, 515.334.4980.
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Articles such as this are the opinions and advice of Doug Burnett, Broker/Owner of Burnett Realty. When making any real estate decisions or transactions, please consult the advice of your own Realtor and/or attorney.