Desperate to grab hold of today’s historic low home loan interest rates, many people seem to be willing to PAY ANYTHING to lay claim to ownership of a home of their own … TO GET RICH IN THE FUTURE. Problem is, they aren’t paying attention to future changes that are almost CERTAIN TO OCCUR and how those changes might affect them a few years down the road.
Truth is, you may not be able to sell for a huge profit IN 5 YEARS like everyone is doing right now! It might be wise to consider the following … a somewhat typical scenario:
Let’s say you buy a home today (2021)
- Price of the property you just purchased is $450,000 … pretty typical for today.
- The interest rate on your 30 year purchase loan is 3.25% … also typical.
- (let’s assume 100% financing, to make things simpler).
- The loan payment is $1,958/mo., principal & interest. Amazing!
- Your income is $6,500/mo …. about average monthly income for a worker like you, and about the min. needed to qualify for this loan. ( “THE RULE” : your income/3 = your approx. max. loan payment amount)
Then, during the next 5 years, let’s assume …
- Interest rates increase by 1/2 % / year (a modest and reasonable amount)
- Income increases by 5% / year (this may actually be more than usual)
Then, after 5 years, you want to sell your home.
(You will sell it yourself to avoid a Realtor’s fee … for a nice big profit!)
- The buyer is just like you, an average working guy with an income that has increased to $ 7,900 I mo. in the last 5 years.
- The est. home loan interest rate at this time is est. to be 5.75%.
- Based on his income, the buyer can qualify for a monthly loan payment of about $ 2, 750, principal & interest.
- This payment will allow the buyer’s to pay you a maximum of $470,000!
END RESULT FOR YOU, THE SELLER?
You may barely BREAK EVEN! (After paying about 3% closing costs)
Will all this actually happen? No one knows for sure, but those that pay attention to today’s financial situation and trends tend to agree that the scenario described above may very well occur.