Financing is a key factor in buying AND selling a home. Mortgage rates, prime interest rates, the bond market, and even Ben Bernanke’s speeches all influence not only your ability to buy or sell, but also at what price. All of these variables are directly related to financing.
Why should I care about financing if I am BUYING?
The answer might seem obvious, but here’s the deal…I’ve guided hundreds of people through the home buying process. You wanna know the biggest mistake I see people make? They get too focused on the price of the home and don’t pay enough attention to the cost of the loan. There’s the magic – and smart buyers know it. Investors are usually the first ones to take advantage of this secret.
You see when you buy a house, you’re really buying two things. You’re buying the house and your buying the money to buy the house. Both have costs. The cost of the home is the price, and the cost of the loan is the interest rate. But here’s the kicker – did you know that for every 1% interest rates go up, the price of any given home would need to fall by 10% in order to maintain the same monthly payment on that home? Read that again, because it’s huge and it’s what almost everyone misses.
In other words, if you’re looking at a $400,000 home and interest rates go up by 1%, you would need that home to fall to $360,000 in order to maintain the same monthly payment. And at the end of the day, that’s what really matters is the monthly payment. You’ll see the purchase price of the home twice in your entire lifetime – when you buy it and when you sell it. But you’ll see the monthly mortgage payment every month, month in and month out.
Funny, most people after 3 or 4 years living in their home don’t even remember what they paid for it…but they remember, to the penny, what their monthly payment is. In other words, they don’t remember the price of the home, but they know exactly what the cost of the loan is. So, focus on the interest rates, not the price of the home. And by the way, interest rates are silly right now. Silly = ridiculously awesome.
Why should I care about financing if I am SELLING?
Interest rates and the availability of money is the biggest factor that drives the housing market next to jobs. If rates are high (in the perception of the buyer) then home sales will slow down. If lending is very tight, home sales will slow down.
Fortunately right now, neither is the case. Rates are low (see reference to “Silly” above) and banks are beginning to lend more and more. These actions expand the buyer pool, which makes it a very advantageous time to sell. So even though you’re not the borrower when you’re selling your house, smart sellers track interest rates and take advantage of the market when the time is right. By the way, the time is right now.
If you are considering selling, please be sure to contact us so we can present the current data to you and show you how to position your home in such a way that takes advantage of the current lending conditions.
If you’re buying and selling right now…well high five to that…you get to take advantage of low rates on both ends of the spectrum. Cheers to that!