With changes in the housing market, you might question whether it is a good time to buy a house. But a better question to ask is whether now is the right time in your life to buy a house.
What happens in the housing market is important, but your financial situation and whether you are ready to buy a home should be more influential in your decision.
Understanding how to buy a house and the steps in the process is also essential before making such a significant commitment.
We will review what you must consider when deciding if now is the right time to buy.
Changes are happening that will affect you when entering the housing market. However, it is crucial to understand that all real estate is local.
What is happening locally could be very different than somewhere across the country. Don't assume the national headlines apply to your local market.
It might be a good time to sell a home and a less desirable time to buy. The trends can change quickly, so you must always monitor the market.
A local real estate agent can help you do that.
While more homes are available for sale than last year, fewer homes are available than expected in a balanced market. At the same time, there are fewer buyers and less competition for homes.
On average, sellers are receiving 2.5 offers, when this was nearly 4 offers last year. Homes also take slightly longer to sell, with more days on the market.
Though the market has cooled somewhat, many homes are selling above the list price, though less than last year.
There is still limited inventory to purchase, but there are also fewer buyers.
Interest rates had stayed low for a long time but began rising last year. For a 30-year fixed-rate mortgage, interest rates have averaged between 6% and 7% recently.
With higher interest rates, mortgages are more expensive. This might mean that you will be paying hundreds of dollars more each month than you would have done had you bought a home over a year ago.
Rising interest rates are the biggest reason the real estate market has cooled. Rising prices were acceptable until the cost of borrowing money doubled from the lows.
The median price for homes nationally was $359,000 in January. This is an increase of just 1.3% from a year ago. Despite the national picture, what is happening in your area could be very different.
For example, prices in the south are up over 3%, but in the west, they have fallen by 4.6%. Your real estate agent will help you understand the price trends in your area and how that will affect your steps for buying a house.
There are some things you will need to consider to help you understand if you are ready to buy:
Do you want to put down roots?
Do you expect to live in this location for a long time? Do you have relationships and interests to keep you in the area?
Would you like to buy a condo or a home? These are all questions you should have figured out.
If you decide to move before you have lived in the home for a long time, you will lose out financially.
Unless property prices have risen significantly in that time, your equity will be less than the cost of buying and selling the property. Even if prices have risen quickly in just two years, selling your home in that time could mean you have to pay capital gains tax.
While you can afford your mortgage payments right now, that could be at risk if you don't have job security.
It is better to wait until your employment is more stable than risk buying a home and not being able to keep up with the payment schedule.
Your financial situation is all important when looking at how to buy a house. There are three main things to consider before committing to getting a mortgage. They are as follows:
Buying a home means you need the money for the down payment, the closing costs, moving costs, and more.
Down payment requirements will vary between the type of loan and the lender you choose, and you might only need 3% of the purchase price.
But the more money you have for a down payment, the better the terms will be from the lender. You will not have to pay private mortgage insurance when you have at least 20 percent to put down.
PMI is a useless expense that only benefits the lender by giving them security if you default.
When you apply to a lender for a mortgage, they will check your DTI. You will not qualify for a home loan if your debt is too high compared to your income.
If your DTI is low, you stand a better chance of getting the mortgage you want at lower interest rates.
Not many more factors are essential for a lender to evaluate whether to lend or not.
Your credit score must be higher for lower mortgage rates and better terms. If you want the best deal from a mortgage lender, your credit score needs to be 740 or above.
If your credit score is below 600, waiting while you improve your credit might be better. Otherwise, you will need to get a bad credit home loan. It will mean you won't get the most favorable terms from the lender.
If you decide to hold off on making a purchase, it will be essential to work on improving your credit scores.
One of the best ways of doing so is by utilizing Credit Karma. They are a free service that provides helpful guidance in making proper financial decisions. So many people make mistakes with their credit decisions.
Credit Karma solves that problem. You may have the credit score needed to buy a house, but you should focus on the scores that will get the best terms.
Buying a house is a significant life decision that should not be taken lightly. Never jump into the real estate market before you are emotionally and financially ready.
Homeownership is a significant amount of work that comes with tremendous responsibilities.