Adulting 101 Real Estate Accounting

Don’t Let Rising Rates Be the Driver of Your Next Home Purchase

Raising interest rates should not be the deciding factor of finally purchasing a home.

I know what you’re thinking, the Federal Reserve keeps pushing up interest rates and it’s only going to get more and more expensive to own a home through a mortgage. You might be thinking, “Interest rates are at their lowest and now is the time to act and lock in these low rates for the next 30 years.” But is this the best financial move?

Stop Focusing on Interest Rates

Interest rates are not the only expense when it comes to home ownership. There are real estate taxes, repairs and maintenance, utilities, and much more. All of these expenses are going up as well but that doesn’t mean you should rush into home ownership because the rate you can get on a mortgage is attractive.

Focus on Your Down Payment

If interest rates are your concern then there’s nothing that will raise your interest rate more than not having an adequate down payment.┬áPrivate mortgage insurance (PMI) typically costs between 0.5% to 1% of the entire principal balance on an annual basis. On a $200,000 loan a homeowner could be paying as much as $2,000 a year, or $167 per month, just for not having an adequate down payment.

Don’t Rush Into Real Estate Ownership

Purchasing a home is one of the most expensive (if not the most expensive) buying decision you’ll make in your entire life. Rushing into a real estate purchase is a sure-fire way to lose money. Before any major purchase decision you want to do the following:

  • Weigh your options
  • Compare prices
  • Consult with an advisor
  • See if you can afford the purchase
  • Do your due diligence

If your only concern is locking in a mortgage rate before the Feds raise rates by a quarter of a percent then you’re going to be blindsided by factors you were ignoring.

New Tax Law Changes Cost of Home Ownership

The old models in calculating the after tax cost of home ownership are going out the window in 2018. With the new tax law doubling the standard deduction, fewer and fewer taxpayers will be itemizing in 2018 and beyond.

It’s more likely that the full cost of home ownership will be reflected upon purchase and there might not be a benefit for real estate taxes or mortgage interest paid. Therefore, the rent vs. buy decision looks a lot different especially if you don’t have the funds to put money down at closing.

Consult with a Trusted Advisor

Before making any major decision you want to consult with a trusted advisor. Purchasing a home can be one of the most complicated and expensive decisions you’ll make in your entire life. Don’t put yourself at risk by rushing into home ownership – consult with a financial advisor to see if the numbers make sense.


This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Photo Copyright: <a href='https://www.123rf.com/profile_seamartini'>seamartini / 123RF Stock Photo

Jeremias Ramos is a CPA working at a nationally recognized full-service accounting, tax, and consulting firm with offices conveniently located throughout the Northeast. Jeremias specializes in tax and business consulting with focus areas in real estate, professional service providers, medical practitioners, and eCommerce businesses.

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