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Should you buy a home right now?

There’s a home buying craze in the air, and the fever is spreading fast!

Everyone we know is either buying a home, or thinking of buying a new home. 

But is it really worth it? 

📸: Urban Outfitters

In true Penny style, we’re bringing you answers to your top home buying questions, including: 

  • why the housing market is so hot right now
  • which REFI option to choose if you’re refinancing a home
  • should you sell your home and cash in

Plus, the ultimate Q: Should you invest in your dream home now…? Or should you wait?

(PS. If you’re not familiar with housing lingo, like REFI and whatnot, we created a cheat sheet for you! Just scroll down to the end.)

"Why is everyone buying a new home? I don’t get these housing prices!"

I know, right?! Basically, the COVID pandemic changed a lot of things, for a lot of people. 

  1. People now have cash for the down payment. 

Yes, the pandemic hit tons of people financially. But it was also a great time to cut costs and save more. 

Generally speaking, people who lived in cities moved out to the suburbs (reducing their overall home expenses), paid down their credit card debts, and saved more during the pandemic. 

  1. Interest rates are at all time lows. 

After a looong time flying high, interest rates lowered to 2.5% - 4% for your mortgage payment. 

And, according to the federal reserve bank, there are no plans to increase interest rates until 2023! Meaning the chances that you could lock-in historically low interest rates for at least a few years is high. 

  1. And when everyone wants the same thing, prices go up! 

The home buying craze – and equally crazy pricing – is the result of basic supply and demand:

…People finally have money to buy (and want to get out of the city, and into their best suburban WFH life).

…Interest rates are low (creating the perfect opportunity to buy).

Now, there is soooo much demand for new homes, but not enough houses available! 

Driving housing prices through the roof! (pun intended ;) )

“If interest rates are low, when will they increase again?”

Bottom line: no one knows. 

You could read every Wall Street Journal article and not get a straight answer on this. (Believe me, we tried.) 

Again, according to the federal reserve bank, there are no plans to increase interest rates until 2023. But that doesn’t mean things won’t change. Nothing is set in stone. 

You cannot time the real estate market. 

You cannot time the stock market. 

No one ever knows. 

The only truth is: Home prices will follow natural supply and demand rules.

If interest rates go up, home prices will go down.

If the world reopens to a more “normal” post-COVID time, and companies require people to go back into the office (WFH no more), it’s possible people might move back to the cities… and sell their homes. Again. Which could also drive home prices down. 

If interest rates stay as low as they are, home prices will plateau at higher rates.

"I’m doing a REFI, should I do a 15-year or a 30-year payment option?"

Yay! You’re making money moves. Wooohoooo! Generally, you have two options (15 year or 30 year). Here is an example of a Penny gal.

  • Option A: 30 years at interest rate 3.1% paying $2,000 a month 
  • Option B: 15 years at interest rate 2.7% paying $2,900 a month

Without considering your full financial picture, income, or any other factors, option B is the winner. 

Why? You pay much less interest over time, and own the house much earlier. That’s a natural win-win. 

BUT… As you can see, the payment for option B is a lot higher. That's less cash money for other things in your life. 

So, the real question you want to be asking is: Do you want to commit to paying $2,900 a month? 

Depending on your long-term goals, option A: the classic 30-yr mortgage, is waaay better once you factor everything in. 

With the extra $900 a month here, this gal could easily:

  • max out her IRA (that could grow to $1 million bucks -- seriously), 
  • beef up her emergency savings, and 
  • have a little extra cash in her pocket to indulge in mani-pedis or retail therapy. 

That’s a triple-win!

"Should I sell my house to cash in on these crazy home values?"

You can, but ONLY IF:

  • you can buy a house somewhere else for comparable value,
  • you were planning to move anyway, or
  • you can confirm the house is in good shape (everyone is skipping inspections nowadays… that’s a serious gamble!)

That being said… 

You don't have to sell your house to extract its full value. 

You could do a home equity loan, which essentially adds to the balance of your mortgage.

How it works: 

  • Let’s say you take a $100k home equity line. 
  • That $100k goes into your bank account. 
  • Now, you owe your bank/lender $100k ontop of your mortgage, at the current interest rate.

Depending on what your goals are for selling your home, this may be a much better alternative for cash in your pocket (and without the headache of a mortgage closing).

“Should I buy my dream home NOW… Or wait?”

Sometimes herd mentality leads to doing what everyone else is doing. 

BUT… just because your friends are buying $1.5M houses doesn't mean you have to. 

(A recent survey found that 64% of millennials regretted buying their current home. Don’t let this be you!)

You can't compare your mortgage payment to your rent payment, and make a black-and-white decision from there. 

Owning a home has many more expenses. Think: property taxes, home insurance, HOA fees, sewer, furniture, repairs… the list is endless!

When you consider buying a new home, ask yourself:

  • What can you afford? 
  • Would you save money if you bought a house? 
  • Do you even need a house? 

Think of YOU and your money goals. No one else. 

Of course, we all dream about that charming, spacious house we've always wanted. But buying a house can make you cash poor

Don't let this craze push you into a situation where you are going to feel stretched with the monthly payments… And further away from your financial goals. 

PS. Some people are cashing out their 401ks in order to make the down payment -- scary stuff. Please don't EVER do that!!! Your future self will thank you. Literally. Like, $1 million times over.

PPS. Not sure what your money goals are? Take our free money maker quiz and find out! We give you personalized recs based on your financial situation.

Know the housing lingo!

Your home buying, home financing, and housing market mini-dictionary.

FMV -- fair market value

The current value of your home.

Appraisial

The value of your home for property tax purposes only.

REFI -- refinance

Reapplying for a mortgage to reduce your interest payment.

P&I -- principal and interest

A type of mortgage payment where you are paying more than just the interest rate (this helps you pay off your mortgage quicker!)

HOA fee -- homeowners association fee

Building or community fees to fund maintenance for stuff like landscaping, gyms and swimming pools, building insurance, and so on. 

Down Payment vs. Mortgage

Down payment = an initial up-front payment, similar to a deposit. Usually 20-30% of the house value. 

Mortgage = recurring payments you make every month, to pay the remainder of your home loan. Like rent, but paid to your bank/lender.

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