Whether you’re buying or selling a home, you’re going to be confronted and perhaps overwhelmed with numbers: interest rates, days on market, loan terms and many more. They’re all significant in the transaction, but what do they mean?
This column is not the place for in-depth analysis of real estate math … that would be a tall order, indeed. I hope to convey two things: the importance of understanding what the numbers mean and that there is help available to decipher it all.
Should you go with a 15 or 30?
Many buyers are able to shorten their financial obligation by choosing a 15-year mortgage instead of the 30-year variety. The payments on 15-year mortgages are certainly larger, but are not, as it may seem, twice as large. If you can handle the bigger monthly expense, you’ll build equity faster because a greater portion of each payment goes toward principal rather than interest. Additionally, the lower rate and shorter term lessen the overall interest due.
With a longer loan term, you have a higher interest rate and build equity more slowly, but you get the benefit of lower monthly payments and, perhaps, increased buying power. You also still have the option to shorten your loan by making additional payments when possible.
Time is money
When negotiations between a buyer and seller stall, each party should think about what the difference in the offers actually means.
To a seller, it means more money at the time of sale, of course. But there could be more to it. Has the house been on the market a long time? If you decide to stick to your guns on a number, do a little math to be sure it makes financial sense. Should the home linger on the market another two or three months, the cost of keeping the house may be close to or even surpass the amount you’re holding out for. Your move may be delayed and you could end up paying two mortgages, two utility bills, two landscaping bills and so on.
As a buyer, plug the numbers in to see the difference on your monthly payment. It may be that the extra money each month pushes the home beyond your budget, or it could just be a few dollars per month – an amount you may decide isn’t worth it to lose the home.
That’s not what I heard on the news …
Don’t be confused by national numbers that have little to do with our market. Texas never saw the rapid rise in property values that parts of California, Arizona, Nevada, Florida and a few other states did. Nevertheless, the national media and even reporters in Texas have been reporting doom and gloom in the real estate market for some time now.
In most cases, though, real estate investments hold their value quite well, appreciating consistently over the long term. Even many homeowners in the states mentioned above aren’t in as dire straits as the media would have you believe. Think about it this way: If you bought a home four years ago, and its value increased $80,000 over the first three years but dropped $12,000 in the fourth, are you down $12,000 or up $68,000? Unless you’re bought in the third year and are selling in the fourth, that $12,000 drop is not as bad as it sounds.
To the rescue
There’s more to real estate math than this column could possibly explain … we didn’t cover buy-down points, fixed-rate vs. ARM loans, tax implications, credit scores, loan ratios and many other concepts. The intricacies of a transaction this large, along with your specific situation, call for extensive knowledge about numbers in the real estate world.
I encourage you to make a smart choice and hire a Realtor. Realtors work with these figures and concepts regularly and can help you navigate the financial waters and make sense of the numbers. Additionally, Realtors are bound by a strict code of ethics, which means that they are obligated to act in your best interest.
Whether you're interested in buying your first home, your next home, or just want to know more about home-ownership in general, I encourage you to check out a couple of great online resources: http://www.texasrealestate.com/ or http://www.har.com/ and for all of your Pearland TX and Northern Brazoria and Galveston County real estate needs, please visit my site at http://www.danfrankrealty.com/. All of these sites offer tons of useful, real estate-related information geared specifically for Texans.
Danny Frank is a local Pearland TX Real Estate expert! You can see my entire blog at http://www.pearlandrealtyblog.com
My column was also published in the 26July09 edition of the Galveston County Daily News