When Is It a Good Time to Buy a House

How do Interest Rates Affect A Buyers Purchase Power? Interest rates are just as important to a borrowers / buyers to keep their eye on Interest rates and purchase power can lower the price points when looking to buy based on the list price.

How so?  Well . . . many buyers are on a monthly budget.  Rather than looking at what they can borrow, i.e., their loan amount, they may look at what mean in their monthly housing payment.

Budgeting is a very key component to living!  Either with rent or a home purchase, budgeting how much your monthly household costs are going to be is important.

Current Interest Rate — Monthly Budget

Let’s say the borrower/buyer wants to keep within a $1,200 per month budget for housing costs.  With Principal and Interest, they can borrow $250,000 at 3.75% interest and they will have a payment of $1,042/month.  With property taxes and insurance, added to that amount, that will round it out to their budget.

But if interest rates climb 2%  . . . their Principal and Interest will be $1,313/month.  And with property taxes and insurance added, they’ll be over $1,500.

How Interest Rates Add UpLess 10% Down Payment@5.75%@3.75%
 Loan Amt Principal/Int Principal/Int Difference
Purchase Price $250,000 $225,000$1,313/mo $1,042/mo $271/mo
Purchase Price $350,000 $315,000$1,838/mo$1,458/mo $380/mo
Purchase Price $500,000 $450,000$2,626/mo$2,084/mo$542/mo

Interest Rates are Low

The current interest rates are low at the moment.  Will they go up?  Of course they will, but predictions aren’t showing them to rise too much — which is a good thing for those considering a home purchase.

What are Interest Rates Based On?

This is my disclaimer:  I’m not a loan officer.  While I know “of” the lending process and home loans, it’s best to talk to a competent loan officer.

Interest rates are comprised of:

  • Credit Rating ~ The better the credit rating, the better the loan quote
  • Income-to-Debt Ratios ~ What is your monthly “debt” compared to your monthly income
  • Job History – How long have you been employed at your current position?

Loan underwriters are looking for stable employment, low income-to-debt ratios and good credit scores.  The lender will offer a borrower/buyer better interest rates with less risky borrowers.