I just crunched some numbers for a customer who has been in the market to buy a home for a few months. Her current favorite house is priced about $220k and she would be applying for an FHA loan with 3.5% down payment. At the current rate (which is hitting lows not seen since the 1960's) her total monthly payment would be about $1400 (principal, interest, taxes, insurance, and pmi). So the question is, "For what is she waiting?"
I believe there are 3 market influences that should help her jump off the fence and land in her new backyard.
1. FHA is going to change both the "up front mortgage insurance premium" and the "annual mortgage insurance" on October 4th. The upfront premium calculation is to be lowered but the annual mortgage insurance is increasing by about 60% for most borrowers. The net effect will increase my customer's payment about $50 per month; even if the interest rate stays the same.
2. Perhaps she is waiting for home prices to fall further. Well let's do some math! If her current favorite house price drops 5% to $209,000 but interest rate jumps 1%, her payment will actually increase by about $69 per month, or almost $25k over the life of her loan. In a nutshell she pays $25k more for a less expensive home.
3. What if the rates go up and the price stays the same? An increase in the rate by 1% increases her payment about $130, or a little more than $47k over the life of the loan.
I'm by no means predicting rates will rise soon; but come on! The time is NOW. Make an offer and call me to lock the rate.
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