Are you thinking about buying a home but aren’t sure whether the time is right? You’re not alone. Buying a home is a big deal, so it’s not a decision to be taken lightly.
Often, would-be buyers weigh this decision based on what’s happening with the housing market. When interest rates rise, and housing inventory is tight, it might seem like a terrible time to buy a home. However, there can be advantages to buying a home in any market.
So, when is the right time to buy? The right answer depends on a variety of factors, including your own personal and financial situation. If you are on the fence about it, here are some questions to ask yourself to help you decide.
What is the cost of renting versus buying?
Even when interest rates rise, you may be surprised to learn the monthly payments on a house are still less than what you’re paying in rent. And if you itemize your taxes, there are the benefits of deducting your home mortgage interest to consider.
Most homebuyers also enjoy the stability of owning a home and knowing what their monthly housing costs will be. Over the long term, the value of real estate almost always goes up, so you’ll be building equity, too—something you can’t do as a renter.
Can I afford it?
If you’re considering a home purchase, you should be looking at how much you have saved for a down payment along with your debt-to-income (DTI) ratio, which compares how much money you have coming in each month (income) to your monthly debt expenses. Lenders will consider both factors before approving your loan, but you also need to feel confident that your expenses are not so high that you can’t cover them.
How does my credit score look?
If you don’t know your credit score, now is the time to find out. A very good credit score — typically 740 or above — can help you get the best mortgage rate and keep your monthly payments down.
If your score is not so great, you may still be able to qualify for financing, but it will help to speak with an experienced loan officer. Otherwise, you may be better off taking some time to work on improving your score before looking for a home.
Can I afford the costs associated with homeownership?
When you rent, your landlord is typically responsible for keeping your property in good shape. When you buy, that responsibility is on you, so you’ll want to be realistic about property maintenance costs and things like repairs and lawn care.
One rule of thumb is that homeowners should budget 1% per year of their home’s price for maintenance and repair costs. So, on a $400,000 home, you may need $4,000 for home repairs and other maintenance. Of course, that figure could be higher or lower, depending on the age of the home you buy and whether the house needs work.
Do I plan to stay in one place for a while?
If you think you may be moving in the next few years for your family or for a job change, it may be best to hold off on a home purchase. On the other hand, you can always consider an adjustable-rate mortgage (ARM), which starts at a lower rate.
If you only plan to keep your home for a few years, you’ll likely sell the house before the rate adjusts. Of course, it’s possible the rate may adjust downward too, depending on the market.
Taking the First Step
If you’ve answered the above questions and decided to take the homeownership plunge, your next step should be meeting with an experienced loan officer, who can help determine exactly how much home you can afford. They will also give you a preapproval letter, which lets home sellers know you’re a serious buyer who is prepared to move quickly when making an offer.
If you have questions about your ability to buy a home and whether now is the right time, the mortgage experts at Right By You Mortgage can help. Just give us a call at 1-877-552-2242 or contact us at firstname.lastname@example.org.