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Saturday, June 15, 2013

Does waiting make sense if you will get less for more later?

I know a prospective home buyer who has been thinking about buying a home for a long time.   This buyer can afford a purchase of "A dollars" based on credit scores, income and obligations, etc.   This buyer wants a monthly payment of "B dollars."

Having a solid budget in mind is great.  It is amazing how many buyers look at "A dollars" and take that as the spending target.

The "B dollars" payment is based on a purchase price about 35% less than the pre-appoved purchase price.  Now disappointment sets in as the desired property will likely cost about 15% less than the approved amount.

What does a prospective home buyer do?  There are three choices here.
  1. Not purchase anything. 
  2. Raise acceptable monthly payment.
  3. Change expectations.
Which is the best choice?

The real estate market in Brevard County is shifting with prices increasing steadily at the moment.  In a period of rising prices and the potential for increased interest rates the first option may be the least desirable.   Interest rates change purchase ability.   Although a cushion exists in this case, why wait and pay more?

The other two choices are strictly a personal decision related to long term goals, savings plans, future planning and the like.  I will not advise anyone to pay more than they want to spend.  The purchase of a house is a long term obligation and a decision that should be entered into freely - not pressured like a used car salesman!

The expectations one has in a home is something buyers need to consider.  There are the things a house must have (location, size, yard size, etc) and then there things the house can not have (repair issues, design flaws, etc).

Finally, let me add one more choice to the three listed above.

      4.  Increase the down payment to bring the monthly payment in line with desires.

This is sometimes not a real choice so I did not list it above.  Still, if it is something that could be achieved, it should be considered as well. 

As prices increase I think of the words "a rising tide lifts all boats" coined by John F. Kennedy.  An increasing trend in real estate prices will also raise the price of even the less desirable properties.

Does waiting make sense if you will get less for more later?  Only the buyer can make this decision.

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