By Marc Reneau

These are two questions we hear quite frequently in the lending industry. Let’s start with, “When should I buy?” The answer to this question will depend on several factors that only you can answer. First and foremost, “Are you at a place in your life where buying a house makes sense?” What we mean by this is:

• Do you have a steady income?
• Do you have money saved for the minimum down payment (this can be from 0-5% of the purchase price depending on the loan program) and closing costs?
• Are you able to maintain the home once you buy it (make repairs as needed, outdoor maintenance, etc.)?
• Where do you think you’ll be in the next 5-7 years?

All of these questions come into play when considering buying a home. 

To compound the issue, mortgage rates continue to be slightly higher than historical averages and that will affect how much you qualify for and ultimately how much home you can buy. 

In my opinion, now is an excellent time to buy for a number of reasons. In addition to the higher-than-normal rates, for years we have struggled with the low inventory of homes for sale. Combined with the rates, this impacts who can and cannot purchase a home right now. The result is less competition for you when bidding on an available home. It’s important to remember that the rate you get today is most likely temporary. This is where the saying, “Marry the home, date the rate” comes into play. Once rates get lower, and based on history, they often do– it’s just a matter of when– and at that point, you can refinance and lower your rate and payment. 

This leads to the next question: “When should I refinance?” Refinancing simply means taking out a new loan to pay off the existing one, and in many cases, at a lower rate than your original loan.

Refinancing can save you thousands of dollars over the life of your loan. To show how much you could potentially save, lets look at this example:

Loan amount at time of purchase: $ 250,000
Interest Rate: 8%
Term: 30 Years

In this scenario, the monthly payment would be $1,834.41 (not including any escrow payment for taxes and insurance).

Now, let’s look at the numbers when the rates drop to 6.5%. With this rate, the monthly payment would be $1,580.17, which is a savings of $254.24 per month, or $3,050.88 a year. You multiply that by five years, and you just saved yourself over $15,000. 

Refinancing can make a lot of sense in the right situation. The facts you need to consider before committing to this course of action are:

• What’s your loan amount? The higher the loan amount the more impactful the savings.
• What’s the difference between your current rate versus what they are today? Obviously the larger the difference, the more the impact will be.
• What are the costs involved in closing the new loan?This will have an impact on the actual amount saved. 
• How much time is left on your current loan? As mortgages are front loaded with interest payments, sometimes it makes sense to keep your current loan even if the rate is higher.

I would strongly recommend contacting a reputable loan officer in your area who can review your specific scenario and provide viable options so you can make an educated decision.