For many Americans, owning their own home is still an essential goal. And right now, you may end up having more purchasing power
: Interest rates are low because the Federal Reserve cut rates
to contain the impact of the coronavirus pandemic.
Last week, the average interest rate on a 30-year mortgage was just 3.3%, much lower than the average 4.1% APRs logged a year ago in April 2019, according to data from Freddie Mac
. With that drop in interest rates, the monthly payment on a $320,000 home is now about $100 less, or roughly $1,500 per year, according to real estate site Redfin’s mortgage calculator
While those rates may have you dreaming about getting a deal on a new home, how do you know if you can afford to quit renting and actually buy a home of your own? Financial expert Suze Orman says she gets this question all the time from her readers. First, it’s important to realize that buying a home is about more than simply having a down payment and being able to pay the monthly bill — even if interest rates are at historic lows
, she says.
For many Americans, their expected mortgage payment may not be all that different from their current monthly rent. But even if you have a down payment saved up, you still may fall short when it comes to paying for all the monthly expenses of owning a home.
When you buy a home, you have to pay property taxes, insurance and maintenance costs on top of your mortgage payment, Orman says. Plus, if you put less than 20% of the home’s purchase price as the down payment, you’ll also have to pay private mortgage insurance, or PMI
, to offset the risk your lender is taking in approving you for a home loan.
Those costs add up. Orman estimates that these extra, but necessary expenses, will cost you an additional 45% over your mortgage, just to keep your home.