Is it a Good Time to Buy a House?

Buying a house is a big decision. Market conditions, the state of the economy and your personal finances all play big roles in determining if it is a good time to buy a house, condo or townhome. Whether you’ve only just started thinking about a new home or you’re ready to move tomorrow, this blog can guide you toward the right decision for you and your family.

In a perfect world, home prices and mortgage rates would be trending downward at the same time your personal financial condition would have you ready to buy a house. Unfortunately, real-life doesn’t always happen that way, and determining whether it’s a good time to buy a house can be challenging. Now, as the economy continues to grapple with the ripple effects of the coronavirus pandemic, it can be especially difficult to know if this is a good time to buy a house.

Purchasing a home is a big decision that needs to be timed right. Below, we’ve outlined the factors to consider, and the questions to ask, to help you determine if it’s a good time to buy.

Market Conditions

Before getting started on your home search, do some research into the current condition of the real estate market and the general economy. Here are some questions to ask:

  1. How is the economy doing? Is it a bull (prices rising) or bear (prices falling) market? When the economy is doing well, inflation rises and mortgage rates rise in tandem. In contrast, when the economy is not doing well, rates tend to fall, which benefits homebuyers.
  2. How high is the current demand for housing? If demand exceeds supply, you’ll be searching for a home in a seller’s market, which means dealing with higher-priced homes, a competitive market and quicker sales.
  3. Is this a popular time of year for buying a home? According to the National Association of Realtors, home sales are slowest in the months of November, December and January, and highest in May through August.1 If you’re house-hunting during a hot homebuying season, you’ll likely have higher prices to contend with and a smaller selection of homes to choose from.

Qualifying for a Loan

You’ll need a minimum credit score to qualify for a home loan. While the minimum score will vary among lenders (typically around 620-640), a credit score of 740 and above is considered excellent. Having a score at or above this number will give you the best shot at getting a preapproval and qualifying for a mortgage with a low interest rate. If your credit score needs boosting, work on paying down debt and paying your bills on time.

Lenders will also look at your debt-to-income (DTI) ratio, or your total monthly debt payments divided by your gross monthly income, before approving a home loan. Most lenders prefer a DTI of 28% or less. If you have a large amount of outstanding debt, work on paying down your credit card bills and other debts before applying for a mortgage.

Personal Considerations

Before looking for a new place, take a good look at your personal and financial situation to see if you’re really ready for homeownership.

Before starting your search, crunch the numbers to see how much home you can actually afford. Financial experts recommend that all housing costs (including mortgage payments, taxes, HOA fees, mortgage insurance, etc.) don’t exceed 28% of your total monthly income. Our home purchase calculator can give you a quick estimate of how much home you can afford.

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Results received from this calculator are designed for comparative purposes only, and accuracy is not guaranteed.

Also, consider these factors:

  • Are you ready to lay down roots? Selling your home and moving again in just a few years can be tough on your wallet.
  • Can you cover the down payment and closing costs? Before receiving the keys to your new home, you’ll need to make a down payment on the home, typically totaling anywhere from 3-20% of the total cost of the property. You may also be paying the closing fees, including (but not limited to) the inspection, appraisal and title fees. Some lenders may offer closing assistance programs; for example, you can get $500 toward closing costs if you use a Desert Financial Participating Real Estate Broker.
  • Job security. Do you have a job you can rely on to help you meet your monthly mortgage payments? Make sure your job is dependable before committing to a large monthly payment.
  • Are you ready to be a homeowner? There’s more to being a homeowner than just paying the mortgage and carrying trash to the curb. When the washer breaks, you’ll have to repair it on your own or pay an expert to do the job. Do you have an emergency fund that can cover these surprise expenses?

As a homeowner, you’ll also have to devote a chunk of your spare time to home and property maintenance. Are you ready to spend your Saturday mowing the lawn? It’s important to ask these questions now instead of regretting a decision later.

Is it a good time to buy a home? The answer will depend on general market conditions, the state of the economy and your personal finances. Your credit union can help guide you through this crucial decision so you can time your purchase right. By asking yourself the tough questions and working with an experienced mortgage professional, you’ll set yourself up for success in your new home!

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1https://www.nar.realtor/blogs/economists-outlook/seasonality-in-the-housing-market

The material presented here is for educational purposes only, and is not intended to be used as financial, investment, or legal advice.