1)  Rent Lost

Rent = $1,200/MO - the average person takes 30 days to buy.

If you wait 6 months, you will pay you landlord ………………..   $6,000  

2)  Rate Change

If today’s rate is 5.5% on a 30 Year fixed rate mortgage, assuming a $200,000 sales price with 5% down:

Your payment will be… $1,073 per month…

The following shows what happens to your payment if your rate goes up by the time you buy (in ½% increments)

Rate      Pmt           Loss/mo   Cost/YR      Cost 7/YRs    Cost 30/YRs

6.0%     $1,133       $  60        $   720         $  5,040        $21,600

6.5%     $1,194       $121        $1,452         $10,164        $43,560

7.0%     $1,256       $183        $2,196         $15,372        $65.880

This number you must look at from the long term picture.  If you wait 6 months to buy a home, it is possible (or even likely) that the rates will be up .5%.  The cost/loss to you IS NOT $60 per month.  The cost is $60 per month times however many months you own the home. The average American owns a home 7 years, so that loss equals $5,040.  If you keep this home as a rental property (a great idea especially for your first home and when rates are this low) then the loss is times 30 years, or $21,600.  Of course if you look at it like a good financial planner would, your loss is not simply the $21,000 but it’s that amount times the opportunity cost of lost interest had you invested that money yielding 5%-10% appreciation compounded annually.  This of course multiplies the loss to 2 to 3 times the actual cash loss!!!!

And if you are waiting until “next year” to buy that rental property…”Hello”!

3)  Appreciation Lost (Assuming a $200,000 sales price)

Appreciation             Per Month            6 Months                   1 year

 3%                        $   500                    $ 3,000                    $  6,000

 5%*                      $   833                    $ 5,000                    $10,000 

 6%                        $2,000                    $ 6,000                    $12,000

 8%                        $1,333                    $16,000                   $32,000

10%                       $1,666                    $20,000                   $40,000

*Metro Atlanta typically appreciates at an average rate of 4%-5% per year.  Atlanta was predicted to appreciate 24% over the next 5 years (CNN.com “Top 10 Places to buy-NOW”)

4)  Tax deduction/interest write-off

This is the trickiest of the calculations because everybody’s tax situation is different, and the tax code is a tad bit complicated.  But as a general rule, you can write off 100% of the interest portion of your payment.  And if you didn’t know, the interest portion is MOST of the payment (for the first few years anyway).

For example:  using the examples above, with a $1,073 per month payment ($190k loan @ 5.5%), the interest portion of the first payment is around $850 per month.  So that’s the write off that you will NOT be getting per month until you buy.  Most people buying this price home are in the 28% tax bracket plus 6% state.  That means the actual cash loss is the monthly payment times your tax bracket.  Let’s say 33%.  So in this example, you are losing $280 per month CASH in tax deduction that you are not receiving.  That’s not even taking in to account that writing off $10,200 per year ($850 times 12 months) would probably take you in to a lower tax bracket; consequently, you would pay taxes at a lower rate…… (again, I am not an accountant nor do I ever want to be one; so, consult a CPA regarding your particular tax situation).

So,….Your “lack of deduction loss” is appx.…. $250- $300 per month

SUMMARY:  IF YOU WAIT 6 MONTHS TO BUY, YOU ARE LOSING BETWEEN $8,000 AND $15,000 IN THAT TIME ALONE!  IF YOU MISS TODAYS RATE, IT COULD COST ANOTHER $15,000 TO $100,000 MORE OVER THE LONG HAUL.

One last point: Affordability and lifestyle

I do not recommend ANYONE BUYING A HOME that they can not afford, or that will make them ‘house-poor’.  I recommend that you should be fairly conservative.  This means add up your PITI (total mortgage payment with taxes and insurance added in) and your payment should NOT be above 30% of your GROSS monthly income (before taxes).

Remember this, though:  If you ‘wait’ to buy, that $200,000 home will most likely be $210,000 next year (5% appreciation).  So the question you must ask is, “Is my income going up 5% per year?”  If not then you will be able to afford LESS in a year than you can now.

**This is not intended as an earnings claim on purchasing real property.  Past results are not in indication of future performance.  Please consult your tax advisor (ask about the W-4 form).