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Live in the Payment, Not the Price

In Buyers, Homeowners by Doug Phelps

Last week, we talked about the ever-important topic of possibly waiting to buy a house and why that decision will end up costing you more in the long run.  Some potential home buyers are currently waiting to see if the market “cools down”, or in other words, they are waiting to see if the average price of housing will go down over time.  After all, the average price of a single family home in Denver right now is about $693,000.  Yet waiting on the market will only add higher costs since the average year over year appreciation value of a single family home has been about 13% since May of 2021, as detailed.  Deciding to wait to buy a home is indeed an expensive decision, especially considering that current home values are based on supply and demand and not market inflation.  While some home buyers may experience sticker shock and even cold feet, I have a few tips on how to look at the current home costs by living in the payment and not the price. 

What does It mean to live in the payment?

As buyers get caught up on the initial asking price, I encourage buyers to live in the payment, not the price.  This means that you should focus on the monthly payment you’ll be responsible for in day to day life, as opposed to the long-term costs.  Living in the payment means that you and your lender have run the complete monthly numbers and you are happy with this.  After all, having a mortgage ensures you can pay off the home loan long-term over years by breaking it down to smaller, manageable payments.  When you decide how much you can comfortably afford, you may find that price increases in the market don’t actually impact your monthly payment very much.  If you’re looking at a community with an homeowners association (HOA), a special taxing district, or a golf course home that comes with extra fees, make sure you are also factoring those numbers into your budget as well.

What goes into a monthly housing payment?

Many factors influence monthly payment.  If you’ve ever taken a long look at your mortgage statement, you’ll find that a home mortgage payment consists of principal and interest (P&I) payment, and typically an escrow for property taxes and homeowners insurance. HOA dues and other fees are separate and also factor into your total monthly housing cost.  

If you’ve put less down in a purchase, then you may also have private mortgage insurance (PMI) based on the terms of your loan.  Typically, the less you put down, the higher your PMI will be which will add cost to your housing payment.  And of course, if the price is higher, the taxes will become higher because they are based on a percentage of the home’s assessed value.  The longer a buyer waits, it is inevitable that the property cost will go up and then all of these costs will go up. 

Your monthly payment

Living in the payment also means that you can comfortably pay your mortgage and maybe even add on additional principal by doing a refinance over time.  Of course, interest rates are an important factor so if you’re looking to buy and the current interest rate is something agreeable to you and your budget, I suggest not waiting.  Your mortgage payment will vary based on your terms as well, while most buyers opt for a 30-year fixed loan timeframe, other buyers opt for a 15-year fixed timeframe. There is growing interest in using an adjustable rate mortgage (ARM), typically in a 5- or 7-year fixed timeframe before becoming adjustable. It is really a personal preference and financial comfort.  After all, you want to make sure you have enough money at the end of the month to enjoy your favorite hobbies like golf or traveling.  

Are you ready to make a move right now? Are you in the market to buy or sell your home?  Call and text me at (720) 323-4176 or email me at [email protected]

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