"Affordability" isn't just about the list price of a home
When looking to buy a home, many people focus on price -- and in today’s competitive market, there’s no doubt prices are moving up. But one of the most important items a buyer should consider is the monthly payments and not necessarily the cost of the home. This is the definition of affordability.
Interest rates are low right now. A lower interest rate will mean a lower monthly payment. But how big of a difference does something like two percent make? A lot of renters are asking themselves if they can afford to own a home, but a more important question to ask is: What can I afford to pay each month?
Our example below uses a home priced at $400,000. If your interest rate is 4.5%, you'll pay almost $500 less per month than if your rate was 6.5%. That's nearly $6,000 a year in savings.
You can see the difference that only two percent makes. Not only will your monthly payments be much lower, but you may also be able to afford more of a home than you think.