Buying a home is a balancing act. In addition to location, school districts, and size, you’ll have to throw the all-important money question into the mix. “How much house can I afford?” But what many homeowners don’t stop to consider is that when you buy can be just as important as how much you buy. Are you ready to take that big leap into home ownership? Here are a few hints to help you answer that question.
Is the market ready?
Buying a new home (or your first home) can depend largely on what kind of housing market you are working with. In the face of the financial hardships that many homeowners began to face just a few years ago, many of them are desperate to sell. This may seem like a report of gloom and doom, but it can actually be good news for you because it means that housing prices are lower than they would normally be.
Mortgage companies like Freddie Mac made news earlier this year when it seemed that the bottom fell out from underneath its interest rates. This was a good indicator for many potential home buyers that now is a good time to move. Magazines like Forbes were also reporting that these were the best mortgage rates the market had seen, both fixed and adjustable, in half a century. If you’re an opportunist, you may also see this as a sign to buy now because as the economy gets stronger, these rates are bound to increase again.
Are you ready?
More important than the climate of the market, however, is the state of your finances. A good deal on a home isn’t really a good deal if you can’t afford to buy it in the first place. This is where a bit of caution can go a long way for consumers, especially considering that many lending companies have relaxed their restrictions on who can take out a mortgage. Remember, the housing crisis was caused by the same kind of behaviors.
That is not to say that financially stable consumers shouldn’t be considering buying a home. But they should do the math first. The traditional argument for most homeowners has been that owning a home means that you are paying into an investment, rather than providing income for a landlord the way renters do. While this is solid logic, you should also consider the fact that owning a home can be almost twice as expensive (in terms of monthly expenses) as renting. You may begin with a fixed mortgage payment, but you should also calculate the costs of home owner’s insurance, maintenance, and property tax.
In addition to your monthly budget, you should also consider your long-term budget and credit history. One of the primary factors that can influence whether you’re ready to buy a home is your credit rating. Good credit makes you eligible for the lowest interest rates available on home loans, so whether you have put time and effort into boosting your score can make or break your decision to buy.
Another advantage for prepared home buyers is having enough saved up for a 20 percent down payment. Though current lenders are easing restrictions and letting people buy homes with less money down, paying off at least a fifth of the cost of your home upfront can drastically reduce the amount of interest that you’ll end up paying on your mortgage by thousands of dollars. Use a mortgage calculator to play with the numbers and see how much you can save by paying more upfront.
Now that you have a “cheat sheet,” deciding when to buy a home will be easier. Just remember to go at our own pace, not the market’s.