After seeing current home prices in Charlotte’s real estate market, and home prices continuing to rise across the United States, I decided to put off buying a home for yet another year and continue renting into 2024.
While having to wait to buy a home can be really frustrating, you can also take this extra time as an opportunity to carefully evaluate your readiness for this big financial commitment.
Use High Interest Rates To Grow Your Down Payment Without Extra Work
Higher interest rates mean you can earn some extra money toward a down payment. Certificates of deposit are paying upward of 5% interest and offer peace of mind that your money will grow safely rather than letting it sit in other riskier investments.
If you’re not planning to buy a home for at least 10 months, consider CDs as a place to stash your down payment. I would not recommend putting your regular emergency fund in here as the best rates I found have terms between 10 and 12 months.
But CDs are a great place to remove the temptation of spending your savings elsewhere while waiting for housing prices to change.
Ditch Debt Now For More Room To Breathe As A Homeowner
American consumer credit hit a record high $4.95 trillion in August, according to the Federal Reserve. I’ve personally coached hundreds of people who let credit card bills run up even because they thought buying a home over renting would save them money.
The cost of buying furniture, ongoing maintenance like cleaning and lawn care, and the unexpected repairs are not top of mind when you are just thinking about buying the home. Becoming a homeowner costs more than just your monthly mortgage payment, taxes and insurance — a reality that many people tend to overlook.
With average credit card interest rates near 27% according to Forbes Advisor, owning a home will be a struggle if you can’t lower your debt obligations. If you’re carrying any balances on your credit cards, it’s hard to wait until you’ve cleared them before buying your next home. But it’s worth the mental peace and it also will help you build better money habits to prepare for homeownership.
Play With Other Variables Other Than Your Mortgage Interest Rate
Learning to look at the whole picture, and not just the monthly payments, can save hundreds of thousands of dollars. It can also push you to save up cash, lower your purchase price or finance for fewer years in your loan term.
For example, you buy a home today at the median price of $363,000 with a 20% down payment. A 7% interest rate could cost an additional $405,133 in interest over the life of 30-year loan.
Using a mortgage calculator to test out different loan terms, a 15-year one would decrease the total interest to $179,435.
Before establishing your home buying budget, practice with a mortgage calculator to understand how these four variables can impact your monthly payment, and potentially save you thousands of dollars in interest:
- Home price;
- Loan terms in years;
- Interest rate; and
- Down payment.
Waiting another year might feel long. But being trapped in a financial burden you can’t afford is a risk worth avoiding with some patience and well-intentioned research.