What exactly is "purchasing power?" It's the financial ability to buy products (and/or) services. When it comes to home purchasing power it really means, how much house debt (or loan) do you qualify for or do you want to take on? Lending institutions may tell you that you qualify to spend way more than you feel comfortable spending, it's up to you to use your common sense and "gut instinct" to decide how much you are comfortable paying now and into the future. Todays interest rates play a big part in how much home you can afford. Here's what I mean: I found this at Affinity Federal Credit Union, it explains the effect of a rise in interest rates:
For example:
You determine you can pay $1,500 per month for housing.
Your taxes and insurance total $300 per month, so you can afford a monthly mortgage payment of $1,200.
If you look at the chart, you will see that you can take out a loan of $251,353 at 4 percent interest.
If interest rates rise, your loan amount and the price of the home you can afford will go down. For example, the chart shows that if rates were to rise to 6 percent, your loan amount would be reduced to $200,150.
Notes about this chart: This chart was created assuming a 30-year fixed rate conventional loan. The figures listed below include principal and interest only. Keep in mind that your monthly tax and insurance escrow will add to your total monthly mortgage payment. Note that when comparing loans, you must consider the cost of the loan as reflected in the APR.
Interest Rate
Mo. Pymnt 3% 4% 5% 6%
$300 $71,157 $62,838 $55,884 $50,037
$400 $94,876 $83,784 $74,513 $66,717
$500 $118,595 $104,731 $93,141 $83,396
$600 $142,314 $125,677 $111,769 $100,075
$700 $166,033 $146,623 $130,397 $116,754
$800 $189,752 $167,569 $149,025 $133,433
$900 $213,470 $188,515 $167,653 $150,112
$1,000 $237,189 $209,461 $186,282 $166,792
$1,100 $260,908 $230,407 $204,910 $183,471
$1,200 $284,627 $251,353 $223,538 $200,150
$1,300 $308,346 $272,300 $242,166 $216,829
$1,400 $332,065 $293,246 $260,794 $233,508
$1,500 $355,784 $314,192 $279,422 $250,187
$1,600 $379,503 $335,138 $298,051 $266,867
$1,700 $403,222 $356,084 $316,679 $283,546
$1,800 $426,941 $377,030 $335,307 $300,225
$1,900 $450,660 $397,976 $353,935 $316,904
$2,000 $474,379 $418,922 $372,563 $333,583
This should make it clear that getting into a home sooner rather than later is going to afford you "more home" for the same payment. If getting into a home of your own is on your list of things to do, act now. Contact me to get started today! Let's get you more home for your money!
