DECIDING when to buy a home is never easy.
In a TikTok video with more than 39,000 likes, finance wiz John Eringman has broken down the math for potential homebuyers.
John Eringman has 1.2million followers on TikTokCredit: TikTok/johnefiance
The question of when to buy can be challenging – especially today.
Last month, inflation hit 7.9%, making potential borrowers nervous to take on debt.
And there’s more.
Both renting and buying are becoming more expensive. According to Redfin, the average monthly rent in the U.S. climbed to $1,877 in December 2021.
The same is happening to home prices. Zillow says they will spike 22% this spring.
Moreover, mortgage rates have returned to pre-pandemic levels as the markets prepare for the Federal Reserve to hike rates.
Here is what John told his fans on how to approach the question on when to buy.
When is the right time to buy a home?
Instead of asking when the right time is, consider if you should buy when prices are low, or when interest rates are low, John told his followers.
To best answer your question, John breaks down the math in two scenarios.
First Scenario – Low Interest Rate
Say that you purchase a home valued at $600,000 at an interest rate of 3%. This is considered a low rate.
Your monthly payment would be roughly $2,600 per month.
Over a 30 year mortgage, the total interest paid would be about $248,000.
Second Scenario – Low Price
In the second case, say that you purchase a $500,000 home at a 5% interest rate.
The home is slightly less than in the first scenario, but you are paying a higher rate.
Your monthly payment would be about $2,700 per month.
For a 30 year mortgage, the total interest paid would be roughly $373,000.
Doing the math
When interest rates were low, the buyer paid $600,000 and a total interest of $248,000.
When the mortgage is paid off, the buyer will have spent $848,000 on their home.
When prices were low, the buyer paid $500,000 and a total interest of $373,000.
When the mortgage is paid off, the buyer will have spent $873,000 on their home.
As John told his followers, “The math says that you should buy when interest rates are low rather than when prices are low.”
Are interest rates negotiable?
Another piece of advice for first-time buyers is to negotiate down. </…….