In today’s real estate market, homebuyers are often faced with a tough choice. Do they pay well over the asking price for the home of their dreams, sometimes offering $50,000 – $100,000 over where the home was first listed, or do they settle for a more moderately-priced home because of a higher-interest mortgage? While this decision is a personal one, many argue that it typically makes more financial sense to take on the higher interest rate. Keep reading to learn more.
You’ll need less money upfront
Coming up with the money for a down payment is one of the biggest hurdles that buyer’s face when getting ready to purchase a home. While many of today’s loan programs allow buyers to put down less than the 20% gold standard, it’s still a huge financial output, one that usually costs tens of thousands of dollars.
The hurdle gets even bigger when you increase the sale price of a property by offering over asking. When you increase your offer, you increase the value of your mortgage and, by extension, the amount of money that you’ll need to have for a down payment.
For example, a 10% down payment on a $300,000 house is $30,000. However, if you were to offer $350,000 on the same house, you would then have to come up with $35,000 to meet the same 10% down payment requirement.
If you’re unsure whether or not you’ll be able to come up with extra cash in time for closing, it may be better to choose a more affordably-priced home and pay for your investment over time.
You’ll be able to better manage your finances
Even if you’re currently able to make a higher down payment, it may still be worth it to keep your money in the bank. By financing a lower dollar amount at a higher interest rate, you’ll be able to plan for your monthly payment while still having money in the bank to pay for unexpected expenses, like car repairs or medical bills.
Put simply, if you put your money toward a higher down payment, it is gone. By financing the purchase over a number of years, even at a higher interest rate, you have the security of being able to budget for the expense While still having money on hand to cover anything extraneous that comes up.
Is a higher interest rate the right choice for you?
Choosing between paying a higher asking price or accepting a loan with a higher interest rate is not an easy choice. However, in many cases, taking a higher interest rate can save you money over time. If you still need to think over your options, get in touch with one of our lenders who can walk you through different loan scenarios. Reach out today to get started.
Park Cities Mortgage is an Equal Housing Opportunity lender. Sponsored by NTFN, Inc. 5950 Sherry Lane, Suite 230, Dallas, TX 75225 | NTFN NMLS 75333.