Occasionally, buyers who can qualify to purchase a home decide to “take a break” and wait to purchase a home.
When the focus of buying a home is relaxed, other uses for the money that was going to be used for the home are considered.
Maybe they think how much fun it would be to have a Sea Doo or a motorcycle or a new car. It is amazing how many people would like to buy a home but either don’t have the down payment, the income or the good credit to make it possible.
Instead of spending the money, consider investing the money for two years until the time is right to buy a home. Let’s look at putting the money in a certificate of deposit that earns 2% or in the stock market that could average a 5% return.
If the same amount were invested in a safe stock or mutual fund that earned 5%, it would grow to $11,383 in the same two-year period. It earns more but there is more risk involved.
If you invest the same amount in purchasing a home that appreciates at 3% a year, the equity would be $38,871 two years from now. The dramatic increase is due to leverage, being able to control a large asset with a small amount of cash. The appreciation is based on the purchase price, not the down payment.
Another factor is that there is principal reduction with each payment that is made.