September 24, 2021
One of the most active sectors of the economy in recent months has been the real estate market. Perhaps because so many people have been stuck in their homes during the pandemic, it seems that everyone is thinking about buying a house for the first time, upsizing to a larger space, or downsizing in preparation for retirement. This may have you wondering: When is the best time to buy a house? Should I buy a house now or wait? Here are some factors to consider as you decide.
Factor One: Local Market Conditions
When determining the best time to buy a house, you’ll need to consider the conditions in your local real estate market. If you’re looking at homes in a highly desirable neighborhood, you may find that there are fewer homes available at any given time and high demand for homes as soon as they hit the market. That will translate into higher home prices for you as a buyer.
Just because home prices are higher doesn’t mean that you shouldn’t buy a home, however. If that market is consistently popular, you may see prices continue to rise over the years ahead, making your home an investment that will pay dividends in the long run. Similarly, buying based solely on affordability is no bargain if you end up in a neighborhood where home prices remain static or decline over time.
Increasing Housing Affordability
One of the reasons many people wait to buy a house is that they are not sure whether they can afford it. If budget is a major consideration for you, here are some ways to increase affordability in your home purchase:
- Talk to your real estate agent about various neighborhoods with characteristics similar to the ones you like best. You may find that there are plenty of options at various price points in your metropolitan area.
- Talk to your lender about a variety of loan options for your home mortgage. Different loan types, different down payment amounts, and different amortization schedules can change the amount you pay significantly, both month-to-month and over the life of your loan.
- Find out about grants and incentives that are offered in your target market. You may find grants for first-time homebuyers as well as options for those who are rehabbing an older home or buying in an up-and-coming transitional neighborhood.
- Think honestly about your wish list and prioritize the items there. While you may think a big backyard is essential for entertaining, ask yourself how often you’ll use it. Do you need a dedicated third bedroom for guests, or would it be more affordable to put them up at a local hotel or Airbnb?
- Make sure you and your significant other are on the same page regarding your home purchase. One in-depth conversation upfront can save you thousands over an expensive mistake down the road.
For many hopeful homebuyers, the process of buying a home can bring with it a certain amount of anxiety along with excitement. Talk with your real estate professional and your lender, and don’t hesitate to ask questions so that you’ll be better prepared for each step of the purchase process.
Factor Two: Personal Financial Readiness
Once you’ve decided what type of house you want, what neighborhood you like, and what your budget will be, it’s time to think about how to get yourself financially ready for a home purchase. That means digging into your finances as soon as possible so that you can be prepared for what’s next.
Beginning a few months to a year before you want to buy a home, you should do the following:
- Check your credit report to find out whether or not you are eligible for a home mortgage. Look for errors and write to the credit bureaus with corrections as needed.
- Pay down outstanding debts and improve your credit score. Remember, the higher your score. The more favorable the terms of your mortgage are likely to be.
- At the same time, save as much money as possible, both for your down payment and for your closing costs. Continue to save even after your purchase so that you’ll have a reserve fund for repairs or improvements as needed.
- Talk to your real estate agent about structuring your offer as favorably as possible. You may find that sellers are willing to help with closing costs or make some money-saving repairs before you close on your new home.
- When formulating your budget, consider lifestyle factors. If you are a homebody, spending more on your home and leaving yourself with less disposable income may be worth it. However, don’t max out your homebuying budget if you love going out to restaurants and traveling to exotic vacation spots.
Buyer’s Market vs. Seller’s Market
Sometimes, the decision about whether you should buy a house now or wait comes down to market conditions in your area. You’re likely to have more inventory to choose from in a buyer's market and a stronger negotiating position on price and repairs. You may encounter multiple offers in a seller’s market over the asking price and stiff competition for the best listings. While there are good reasons to buy in either type of market, consider your priorities when determining your timing.
Prequalification vs. Preapproval
Before you begin shopping for your home in earnest, you’ll want to have your lender conduct a prequalification or preapproval for your home loan. Prequalification is based on a few questions and helps your lender develop a rough idea of your homebuying budget. Preapproval requires a credit check and the submission of some paperwork to come up with a firmer idea of how much house you could be approved for.
Ultimately, the best time to buy a house is a personal decision. If you are still building your career or if your income is highly variable or uncertain, this may not be the time for you to buy. Similarly, if you’re not sure where you want to live a year or two from now, you may need to wait a while on your purchase. Often, however, the decision to buy a house is as simple as the emotional pull and sense of security offered by a home of your own, as well as the long-term financial benefits of homeownership.
Whether you decide to buy a house now or wait, do not go at it alone. Crunch the numbers and talk to your trusted real estate agent, financial advisor, and mortgage lender to get a realistic sense of the current market and your financial readiness.
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