You’ve been pre-approved. You know how much you can spend. You go look at more than a few homes, you may even make an offer or two. And then you stop.

I get two answers from potential clients, more than any other answer on why they stopped. “I want to save a bit more money,” and/or “I want to raise my credit score so I can get a good interest rate.” both make sense. However, waiting to buy a home includes a cost which does not appear on your bank statements. In addition, in a rising interest environment, it’s worthwhile determining the mathematical difference (the true cost) in terms of what you can afford prior to making a final decision.

Interest rates will determine how much home you can afford.

In general, when rates rise, you cannot buy a house as big as you can at lower interest rates. Although you are earning the same amount of money, the price range that you can reasonably afford has shrunk. This shrinkage in price range may cause buyers who are already stretching themselves financially (i.e., they’re already at the upper limit of what they can afford), to lose homes that they could have afforded previously; similarly, buyers who are at risk of exceeding their debt-to-income ratios may find that they are unable to qualify for financing when rates rise.

This is the piece most people miss. You’re not simply waiting for your financial situation to improve. The market is also changing during this waiting period, and it doesn’t always work in your favor.

Waiting does not need to include rising prices for there to be a cost associated with delaying a purchase decision.

While I am not going to guarantee that all prices will continue to rise. Some price levels will remain flat for extended periods. Additionally, there is another factor that is unrelated to the actual asking price. When rates drop, many buyers who have been sitting on the sidelines will begin to enter the market at the same time. As such, there will be more buyers competing for fewer properties. Therefore, you will likely experience more multiple offers, and consequently, less negotiating power. To put it bluntly, waiting until there is a better opportunity to buy may mean entering the market at the exact same time as all the other interested parties.

“Want to save a little more.”

Determine what additional savings will accomplish. Low-down-payment mortgage products (e.g., fha, VA), down-payment assistance programs (MSHDA), and seller concessions can each greatly reduce the amount of money that you need to use towards closing costs. An example of down-payment assistance programs available in Michigan is MSHDA’s down-payment assistance program.

It is prudent to maintain sufficient funds in reserve post-closing, but the question remains: does saving more dollars provide an advantage in terms of purchasing options? Or are you already prepared to make a purchase?

“Want to improve my credit.”

Credit pricing operates in tiers. If your fico score falls just short of a particular tier by a couple of points, waiting may allow you to improve your pricing sufficiently. On the flip side, if you are in a lower part of a particular tier, improving your credit by another 15 points may result in no further improvement in pricing. Ask your lender exactly where those breakpoints exist for your specific loan product before determining whether waiting is beneficial.

Date the rate; marry the house.

Most readers have seen this phrase; however, there is considerable merit behind it. A rate can be modified via a refinance; however, the original purchase price cannot. If you purchase the home you desire today, and subsequently interest rates fall in the future, you may potentially qualify for a new loan with a lower rate. Conversely, delaying a purchase decision until you believe that interest rates have fallen may result in higher purchase prices – thus permanently reducing your overall affordability.

However, even if you do ultimately choose to refinance, it is an option not a certainty. No one has any idea where interest rates will be in the future. Refinancing is not free; instead, it comes with closing costs, a breakeven point (to break even on the refinance itself), and requires that you still qualify under the same income/credit criteria and possess sufficient equity when the time arrives. Use today’s payments as justification for purchasing the property today. Consider any future refinance as a possible bonus but not as part of your long-term strategy.

When waiting makes sense.

There are times when waiting makes sense. And rather than encourage someone to purchase who will regret it:

• your monthly payment is uncomfortable at current rates.
• your debt-to-income ratio is either too high to qualify for financing or leaves little margin for error.
• you are preparing to switch jobs or income streams.
• after closing, you do not have sufficient reserves.
• your credit is only several points away from reaching a pricing tier.

If none of these factors apply to you, then it is probable that your hesitation is based more on fear/nervousness than actual numbers. Talking through your concerns regarding this hesitation is recommended.

Conclusion.

My intention is not to hurry anyone along once they are ready to act. Rather than simply waiting without considering actual numbers (payment, credit, savings), I hope you will consider comparing your actual payment now vs. Waiting; your actual credit now vs. Waiting; and your actual savings now vs. Waiting. Only with this complete information can you make an informed decision regarding whether it is best for you to proceed with your purchase plans immediately or delay them.