By Kat Oak, Contributor February 1, 2017
2016 was a great year for the housing market in general, even if there are some areas, like California, that have already begun to see a decrease in affordability. But as interest rates started to increase last fall — and with predictions that they’ll continue to climb in 2017 and beyond — how will this affect your ability to buy a home?
The higher the interest rate is, the more expensive it is to borrow money, and that will ultimately impact how much home you can afford. For example, the average median home price across all of California is $485,800. A 30-year mortgage with an interest rate of 4% means your monthly mortgage will be about $2300, and you’ll end up paying $834,942 for the life of the mortgage. If that interest rate is increased to 4.5%, you’ll be paying over $2400 each month, and ultimately pay $886,132 for your home.
Let’s look at it another way: If your budget for rent or a mortgage is $1500 per month, how much home can you afford? At 4% interest, you could apply for a loan of about $315,000, and you’d ultimately pay $540,000 for that home. With a .5% increase, you could borrow about $296,000, but you’d still be paying $540,000 through the life of that mortgage.
And these monthly costs don’t include any other expenses that are part of homeownership, such as property taxes, homeowners insurance, or HOA dues.
One way to decrease your monthly payment is to put more money down when you’re applying for your mortgage, but 20% of $485,800 is about $97,000! If you are able to put that much down at purchase, however, you decrease your monthly payment down to about $1,800 per month, and you’ll be paying $667,953 for your home.
But saving for your down payment can be difficult, which is why Trio’s lease-to-own program is a great solution for first-time homebuyers or anyone who is working their way back from a financial setback. Trio doesn’t require a down payment which affords you extra time to save for your down payment while living in the house you want. You will be able to move-in with a locked in home price securing your ability to buy on your terms. Plus, with Trio’s OwnOption mortgage, your lease includes a 30 year FHA mortgage locked at today’s interest rates; so even if interest rates go up, you will be paying the lower interest rate you secured at lease signing.
That means that you can not only afford more home when the time comes to buy, but you’ll end up paying less for it over time.