Why Now is the Best Time in Years to Purchase a Home

Failure to act now could be the most costly mistake you make.  Here are the top 5 reasons why:

1.) Leveraged investment power: With most investments, such as stocks and bonds, the money (and risk) you put into the investment is entirely your own.  With real estate, while you may only put down 5% or 10% of your own money, you are receiving a return on the entire value of the home.  So, you may put down $10,000 on a $100,000 home, but at the D.C. metro- area average annual real estate appreciation rate of 7%, you would earn 7% per year -compounded over time - on the entire $100,000.  Appreciation of $7,000 in the first year alone means that you have received a 70% rate of return on your $10,000 initial investment. Compound that over time, and you can see the potential.

2.) All-Time Low Interest Rates: In the past 25 years, interest rates have been as high as 16.63%. 

The economy goes through cycles - after this dip in rates, history shows that rates will cycle back up.  On a $300,000 loan, your monthly payment at today's rate of approximately 6.5% would be $1,862.90.  At 8.0%, the monthly payment on the same $300,000 loan would be $2,201.21.  That is a difference of $338.31 per month - just by waiting and allowing rates to continue to creep up.

3.) Tax Benefits: Homeowners get to deduct mortgage interest and property taxes on their income tax returns as an itemized deduction on Schedule A.  On that $300,000 mortgage at 6.5%, you would pay $19,401 in interest in your first year.  If you are in the 30% tax bracket, your total direct savings through this tax deduction would be $5,820 in your first year (30% X $19,401).  Also, if you live in the home for 2 of the 5 years prior to selling it, you do not have to pay capital gains tax on your profits as long as you purchase another residence.  If you own the home as an investment property, when you sell it is treated as a capital gain, and you pay the lower capital gains tax rate - 15% maximum - on the net profit from the sale. 

4.) Inventory: Now is the time to take advantage of the increase in inventory on the market.  For the first time in years, there is a great selection of homes on the market with eager sellers anxious to make you a homeowner.  As a buyer, you have more leverage than you have in recent years. 

5.) You Need a Place to Live Anyway: Whether you rent or own, you will be making a monthly housing payment regardless.  If you invest in real estate, your tenants will be making most of that payment for you.  If you are not yet a homeowner, you are making that payment for your landlord.  Wouldn't you rather have that money going toward making you a wealthier individual?

Bottom Line: This is the best time in nearly a decade to purchase a home.  Record interest rate lows, tax benefits, buyer leverage, and a healthy supply of houses on the market have come together to create the greatest purchasing conditions that a home buyer could hope for.  Take advantage of it.  You don't want to look back and wish that you had.