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Does it still make sense to fence sit?

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POSTED July 23, 2010 1:17 a.m.
How do you determine when it is the best time to buy a home?

Would it make the most sense to wait until you’re sure the market has hit bottom?

Those two questions are among those that fence sitters typically ask themsleves.

You can talk until you’re blue in the face about the rates being extremely low and affordability being at the best level in a decade especially when compared to income and it still won’t faze some folks.

Instead, they want to get the best financial deal.

Determining the best financial deal based on timing alone is a bit counterproductive.

When I bought 2.5 years ago there were more than a few people who basically said I made a foolish move. The market hadn’t bottomed, they said. (They were correct on that point as the home I bought for $189,000 dropped at least another $70,000 based on even the assessor’s best guess.) The rates will probably go lower, they said. (They were correct on that one as well since I bought at 5.75 and the rate is now at 4.75).

So I made a mistake, right? Wrong.

Had I stayed in the two-bedroom apartment I would have forked over $24,750 more to someone else and had nothing to show for it based on the rent of $825 a month I had been paying.

Yes, prices have dropped but I still have yet to see a house or a neighborhood that fits exactly what I wanted in a home as much as where I am at. That’s the part of a house value that comes into play that has nothing to do with the market value.

But what if I waited about a year and a half when rates hit 5.25 percent? I may have found something that came close and still be money ahead.

Not exactly.

When I bought in February 2008, the rate was at 5.75. Based on history and my own experience I figured 5.75 was a rock bottom rate. The rates might go lower buy not enough to make it significant. It was an FHA loan. I figured I’d never get a chance to streamline it because the rates were too low that I financed my house at. Add to the fact I was “underwater” as my house was worth less in the current market than what I owed and I assumed my mortgage payment was set for a real long time.

Wrong again.

FHA allows borrowers who have made their payments on time and meet some basic credit worthiness standards to streamline once during the life of their loan into a lower rate. It doesn’t require an appraisal.

This week I’m locking in a streamline at 4.75 percent for a 30-year fixed rate. My first inclination was to take the loan down to 25 years but the FHA doesn’t do that anymore. Besides, as Ability Mortgage’s Deborah Romero pointed out, I can simply apply the savings to the principal.

The bottom line? My principal and interest in now $959 a month for a savings of some $130 a month which is about that a home similar to mine rents for today. If I had bought the house for $20,000 less at 5.75 percent the $959 would have been the basic principal and interest.

Did other people get better deals? Of course. Do they like their house as much as I like mine? I don’t know. That is the thing about buying a house. It isn’t like shopping at Wal-Mart for toilet paper unless you are driven by paying the absolute lowest price per sheet despite how you like it.

If that doesn’t convince you, consider this: If I had stayed put and assuming rents never increase, I would have shelled the $180,000 purchase price in just a little over 18 years renting and have no quality or ownership.

As far as how it compares to other investments, I’d like to see you sleep with just a stock certificate over your head.
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