Buying a house is undoubtedly a major life decision. So, should I buy a house now? Read on as we help you make that crucial decision.
Buying a house right now will cost you a good amount of money than it would have a few years ago. That's no secret.
First, the mortgage rates have skyrocketed. In fact, as of August 2023, they hit the highest point they've ever been in the last 22 years. Now, that isn't something to entice new house buyers.
Additionally, home prices have also seen a steep rise ever since the 2020 pandemic hit the world. These two factors have, in one way or the other, left aspiring homeowners with one question. Should I buy a house now or wait?
Well, there's never a simple or straightforward answer for this. Why? These factors are not the only determinants of whether you buy or don't buy a house right now.
In fact, your life goals, current financial situation, and your readiness to buy a house play a major role in your decision.
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Is it a Good Time to Buy a House?
The truth is there is no good or bad time to buy a house. I know this might sound confusing, but I'll show you why in a bit.
First, as mentioned earlier, while the market trends might all be pointing against buying a house, you might be at a stage in life where you seriously need the house. Again, your finances might be good enough to accommodate the change.
So, instead of asking when is a good time to buy a house, you should answer the following questions:
1. What's Your Credit Score?
Excellent credit scores always allow you to get incredible deals on mortgages. Therefore, if your score is somewhere around 750 or above, it certainly can be the best time to buy that house.
For instance, for the 2nd quarter of 2023, the median score was 769 for mortgage borrowers. That's according to a report by the Federal Reserve Bank of New York.
But why does the credit score matter? Well, to lenders, a better credit score signifies low risk. This gives the lenders the confidence that you are likely to pay the loan back without much struggle.
In other words, an excellent credit score with a history of on-time payments will attract incredibly low mortgage rates from a lender. So, if you have an excellent credit score, it might be the right time to buy that house.
2. Do You Have the Down Payment?
For you to get that mortgage, you need a down payment. So, do you have enough? Remember, you'll need to continue paying your bills even during the house purchase process.
This means that you must have enough savings to sustain you during the period and still be able to pay for the down payment.
Additionally, lenders want certainty. They need to see that you have sufficient cushion if anything happens unexpectedly. So, having enough savings gives you an edge when it comes to acquiring a new house.
3. How Much is Your Current Debt?
Lenders will always check your DTI (debt-to-income) ratio before qualifying you for another loan. And that's including mortgages.
But what is a debt-to-income ratio?
It is the portion (%) of your income that is used to pay for your debt obligations every month. This could include payments for car loans, credit card debt, housing costs, student loans, etc. The higher the DTI, the less likely the lender will finance your dream of acquiring a house.
Generally, most lenders want this percentage to be below 36%. In fact, the lower it gets, the more likely you'll get a mortgage at a lower rate.
4. How Long Do You Plan on Staying in That Home?
When buying a house, the purchase price isn't the only cost that you'll incur. In fact, you'll have to pay for other closing costs that might run into several thousands.
In this light, if you don't intend to stay in the new home for long or think you might relocate in the near future, buying a house now might not be the best investment. Why? The costs won't be worth it.
But if you are planning to stay, those transaction costs will be justified. Remember, even if you decide to sell the house, it's not prudent to sell it too soon after purchase. This might cost you serious money in taxes.
Should I Buy a House Now or Wait for the Recession to End?
Recessions are certainly not the best times to buy a house. Why?
First, the chances of losing your job get high during a recession. And if you do lose that job, your mortgage application will, most probably, not sail through.
Additionally, a recession affects the real estate market. This means that even if you are not directly affected, your chances of finding a house to buy are slimmer. This is because not many people will be listing their houses for sale, as fewer people have the means to buy.
However, there are some exceptions here. If you have the means to buy one and are lucky to find a good-listed house, you can undoubtedly buy one. It might even be advantageous!
Since not many people have the capacity to buy homes at this time, it means that the completion is low. Subsequently, this might translate to getting yourself a house at a cheaper price.
So, weigh your options well before making that decision.
See Related: How to Prepare for a Recession
When is a Good Time to Buy a House?
As mentioned earlier, there is no single best time to buy a house. It depends on various factors, both personal and market-related. For example, if you have an excellent credit score, have saved sufficient down payment, and your goals align with buying a house now, then it's the best time to do so.
However, if your credit score is wanting, you might want to first improve it to ensure you benefit from lower mortgage prices. Also, you must save enough money to cover for the down payment and still cushion yourself against any unplanned occurrence.
Why Should I Buy a House Now?
Should I buy a house now or wait? That's the question we've been trying to answer all along.
Now, let's look at some reasons that might necessitate a purchase.
1. Interest Rates are Anticipated to Go Down
If you're considering purchasing a property, now is a great time to buy a house because experts predict that interest rates will go down. According to the House Buyers of America's founder and CEO Nick Ron, mortgage rates are likely to remain around 6% in 2023. That's, of course, if nothing dramatic happens like increased inflation.
Usually, when interest rates are lower, it means that borrowing money to finance your home purchase becomes more affordable. With lower monthly mortgage payments, you'll have more financial flexibility and potentially save thousands of dollars over the life of your loan.
So, whether you're a first-time buyer or looking to upgrade your current home, the decreased interest rates can make homeownership more accessible and attractive.
2. House Prices Might Come Down
Just like with the mortgage rates, house prices are expected to take a dip in the coming days. That's besides the fact that they are still high right now.
According to New American Funding's founder and CEO, Rick Arvielo, home prices seem to be trending lower. That is after a long, continued increase experienced since the 2020 pandemic, hitting an all-time high of $449,000 in June 2022.
When home prices are lower, you have the opportunity to purchase a property at a more affordable price. This means that you can potentially get more value for your money and build equity in your new home faster.
Additionally, buying a house when prices are low allows you to take advantage of potential appreciation in the future. As the market stabilizes and recovers, your property value may increase over time, resulting in greater returns on your investment.
However, it's important to carefully analyze market trends and consult with professionals before making any decisions. Doing so helps you to determine if now is truly the right time for you to buy a house and secure your financial future.
3. It's the Ideal Time for Your Family
You and your loved ones can benefit from the stability and security that owning a home provides. Imagine the freedom of having a place you can truly call your own, where you can create lasting memories with your family. Plus, by purchasing now, you have the chance to build equity over time and potentially increase your wealth.
In some instances, you don't even have an option. Assume you are relocating to a new place for a new job. Will you not buy a house for your family because the market trends are not favorable?
Well, some might wait. But, sometimes, having a house for your family is not debatable, especially if you can afford it.
So, why should you buy or not buy a house now?
Well, the decision is based on a combination of several factors. This includes the real estate market trends, economic trends, financial status, and other personal factors.
For example, your credit score, mortgage rates, house prices, inflation, and personal goals will all affect your choice. Therefore, examine all these angles to determine whether it is the best time to buy that house or not.