I recognize the fact that interest rates are just about at an all-time low. I’ve seen a 30-year fixed mortgage with a low annual rate of 3.375%, and it’s hard to believe that rates will go much below this. However, I found an article today that made me sit up and take notice. It offered five reasons why you shouldn’t buy a house now and they all made sense to me especially if you’re a first-time homebuyer.
How low can they go?
First, home prices could still go down. According to one estimate, there is still an excess inventory here in the US of about 2,000,000 homes. This is pretty large. While home prices have already slumped 36% from 2006, it’s likely that they will continue to fall. One reason for this is that many sales will be homes that had been foreclosed and they typically sell at about a 19% discount.
Do you have bad credit?
The second reason given in this article was that if you have bad credit, you would not be able to take advantage of these lower rates. In fact, your interest rate will be dramatically higher and this will cost you a lot of money over the coming years. As an example of what bad credit can do, let’s suppose you have a perfect credit history and get the lowest available interest rate. If you were to purchase a home for $224,200, you’ll pay $144,383 over the life of a 30-year mortgage. In comparison, if you have a low credit score you could easily end up with a 9% interest rate and, over the course of the 30 years, would spend $428,669 just on interest.
Few affordable houses
At this point, there are just few affordable houses on the market. There are thousands of people who paid very high prices for their homes during the boom that ended in 2007, and now find themselves deeply underwater. As a result, many just won’t sell. And unfortunately these houses tend to be the kind of less expensive and smaller homes that first-time buyers want to buy.
Watch out for the cash trap
When you make a down payment on a house, this is just the beginning. You can run into a slew of other expenses including insurance and taxes, as well as unexpected repairs. If you don’t have enough money in the bank, these unexpected bills could trip you up. In other words, you would not have a cushion in the event you had unexpected emergencies or the house needed repairs.
It can hurt your credit
This is a little known occurrence but getting a new loan can actually put a ding in your credit score, at least in the short term. This small dip could actually create big problems, especially if that new home requires other credit purchases or a credit card from Home Depot. A lower credit score might make it impossible for you to get any credit at all or at least make it more expensive.
Fix your credit first?
If you do have bad credit, you might want to fix it first before you try to buy a house. As you have seen, a bad credit score translates into a higher interest rate, which translates into having to pay a lot more money over the course of your 30-year mortgage. Our debt consolidation providers can help you deal with debt and we offer a 100% satisfaction guarantee. In fact, we’re so confident that we can help you achieve your goal of becoming debt-free in a reasonable time, that if you are ever unsatisfied with our recommended debt relief programs you can cancel at anytime without any penalties or fees. In other words you have nothing to lose by letting our debt consolidations develop a plan and you have a lot to win–freedom from debt and a new house with a much lower interest rate.