A unique online tool is being offered to help buyers decide whether it is better to wait or buy a home now. The calculator can help with a number of complicated questions, such as How much more expensive will it be to buy now with a lower down payment? and What are the financial implications of waiting until it’s possible to put down 20 percent?

With numerous variables that can be manipulated and adjusted to fit an individual’s current financial circumstances and beliefs about the future, the buy now vs. wait calculator is an extremely useful tool to aid in the decision-making process. Some of the factors that can be changed include the amount of down payment, monthly rent and savings allocations, target purchase price, and potential interest rate for a mortgage.

The default settings are a reflection of the fact that the real estate market has seen rapid price appreciation over the past few years. The preset for annual appreciation is at three percent, which is a very conservative number, considering the Wilmington area has experienced approximately 20 percent in price appreciation over the past two to three years.

For amateur and professional economists who believe a bubble is on the horizon, or average Joes who are shaking a Magic 8 Ball that is trending toward the negative, this number can be modified to reflect a downturn. If the default setting of three percent annual market appreciation is kept in place, however, the calculator shows that it is more expensive over the long run to wait instead of buying a home now.

Part of the reason people wait is the misguided belief that it’s necessary to have a 20 percent down payment in order to purchase a home. According to a recent National Association of Realtors survey, roughly 87 percent of people who don’t currently own a home believe it’s necessary to have at least a minimum of 10 percent down in order to purchase. And it is also surprising to note that 39 percent think they will need more than a 20 percent down payment to purchase a home.

This is simply not the case, however. There are many financing options that start with a one to three percent down payment, with the next increments at five and 10 percent. There are some who would say that cash is king. Why funnel a significant outlay of funds into a home - one of the least liquid forms of investment in existence - when you could save the money to spend on necessities, put it into savings or allocate it toward a different investment?

If home prices continue to appreciate, and mortgage interest rates increase as projected, then it is basically guaranteed that it will be more expensive to wait instead of purchasing now.  Of course, those two factors could change, in which case it could be a better decision to wait. (See my recent article about the housing market bubble.)

The buy now vs. wait calculator, which can be found at the Mortgage Guaranty Insurance Corporation’s website, clearly shows it is much more expensive to hold off instead of purchasing, if the default settings are utilized and current conditions continue. This is especially true if interest rates for mortgages rise as expected. It’s an interesting phenomenon that interest rates have a much more dramatic impact on purchasing power than prices. 

For more information about this, or a comprehensive discussion about your options for purchasing a home, please contact me at the number below.    

Patrick Stoy (NMLS Numbers 39527 and 39166) has 16 years of mortgage lending experience. Patrick is CEO of Wilmington-based Market Consulting Mortgage, which he started in 2005 with a mission to build lifelong customer relationships by providing real value. To learn more about Marketing Consulting Mortgage, visit www.macmtg.com. Patrick can be reached at [email protected] or 910-509-7105.