Purchasing a home can be a daunting task especially if you are a first time buyer. It is a huge investment of time and money. Often confusion is the first thing a home buyer experiences. Is now a good time to purchase a home or should I wait until next year? What will the market be like in a few months? The good news there help available to assist you in your home-buying journey. Here are a few things to consider when determining whether to purchase a new home now or wait until later.
1. You are financially able to purchase a new house.
When considering whether or not to purchase a new home, you will need to determine your financial fitness. Simply put, can you afford to buy a house? It may go without saying but you do not want to minimize this important step.
In October 2001 the first Oklahoma City Memorial Marathon was held. It’s an annual event held in honor of those impacted by the 1995 Oklahoma City bombing. And I decided I was going to be a part of it. For months I prepared, and worked on my fitness, in order to complete the race. Unfortunately, just a few weeks before the event, I injured my Achilles tendon. I was no longer fit to run a marathon.
What about you? Are you fit to run the marathon that is purchasing a new house? How much house can you afford? Most experts agree that analyzing one’s financial situation begins by looking at one’s total indebtedness, including the potential monthly mortgage payments on your home loan. The amount spent on housing should not exceed 36% of your gross annual income. However, it may be wiser to lower that to 30% so that you don’t stretch yourself too thin.
How much debt do you currently have? Take the time to calculate your entire debt including credit card debt. Mortgage payments can be estimated by using tools available online (like Rocket Mortgage). This will give you a good idea of your debt-to-income ratio. Again, a general rule of thumb is no more than 36% of your gross monthly income is spent on debt repayment.
There is much more to be said on the financial side of a home purchase like saving for a down payment, determining what type of loan is best (i.e., FHA loan, conventional, etc), etc. Just remember that like running a marathon, purchasing a house requires that one is fit for the race. So if you are fit – your debt-to-income ratio is good, you have cash for a downpayment, and can afford the maintenance of the new home, now might be a great time to purchase a home.
2. You have the choice to buy a new house.
Buying a house is a big decision and it should not be taken lightly. It involves a lot of consideration and planning. Market conditions vary from month to month. What do the coming months hold? Will the number of homes, especially single-family homes, change anytime soon? And then there are housing prices. As a result of the conditions of today’s market, higher prices are a reality. Potential buyers are frustrated even when making cash offers. Bidding wars are real. So in the midst of this seller’s market, you want to make sure that you are buying the best home at the right time, in the right place, for the best price. Finding the right home with everything you are looking for can be overwhelming and challenging.
You already know the housing market is unpredictable. It can be difficult to tell in today’s market when the right time to buy a house is. Because circumstances vary from one buyer to the next, the best time to buy a house for some was last year. For a lot of people, the coming year holds better options. Higher mortgage rates have rolled into the current market. It’s no longer a buyer’s market. The point is that you should take your own unique situation into consideration and make an informed decision on whether or not now is the time to buy.
So what is motivating you to consider purchasing a house? Is the company transferring you to a new city? Your decision might be a little easier to make. Maybe not. Are you tired of the escalation of rental prices and want to own your own home? Is the family growing and additional space is needed? Buyers are compelled by different forces. Whatever is moving you toward the purchase of a new home, be at peace with the decision. This doesn’t mean the process will be stress-free (it probably won’t) but as long as all parties involved are comfortable with moving forward, the journey of purchasing will be a much better experience.
3. You have the credit and cash to purchase your new home.
Oh, the proverbial credit score! Yes, everyone has one even if that score is zero. What is yours? If you have not already done so, the next thing to do is to know what your credit score is. Run your credit report with the three major credit bureaus (ie., Experian, Equifax, and TransUnion). Other online resources are available to help you better understand your credit score, some are even free. A higher credit score will save you much money over the life of the loan.
The information you gain from the reports can help you understand and manage your credit. For instance, in order to apply for a conventional loan, most lenders will require a credit score of 620 or higher. FHA loan requirements are geared toward those who might have a lower credit score. The minimum credit score for an FHA loan is 580. Other loans will have other types of requirements.
Down payments are usually a source of stress for home buyers, especially first-time home buyers. Typically, the larger the down payment, the more likely the lender is to work with you. When a potential home buyer comes to the table with a down payment, the lender’s risk is reduced. Therefore, you will see a better LTV or Loan-To-Value ratio. A down payment will also reduce the amount of the monthly mortgage payment.
The bottom line is the more you can save and use for a down payment the better you will be. Having enough money to use as a large down payment and strong credit places you in the best position to be in when purchasing a house.
4. You are willing to wait and work for the next best opportunity to purchase – if necessary.
There are many reasons why it might be better to wait until a later time to purchase a house. You may believe the market will turn to more favorable rates. Maybe having a down payment of 30% will put that potential mortgage payment into an amount with which you will be more comfortable. Or maybe you need to take time to improve your credit score. If any of these describe you, being willing to wait can pay rich dividends later on.
Waiting a long time for the right time to purchase a home is hard. That’s even more true for first-time home buyers as the thrill of owning a home often stunts our willingness to wait. It takes a lot of patience and discipline to resist the temptation of making decisions we know will not be good. Emotions can overwhelm us. Be patient. Wait for the right opportunity to come so you can make a better decision. Then you will have a stronger position from which to operate when the right time comes alone. And the right time will come. It usually does.
Yes, purchasing a home can be a daunting task. But when you take the time to determine your financial health, seek to make the best choice, create a strong credit & cash position from which to operate, and choose to be willing to wait on a purchase, you will be in the best position to buy your next home.
Purchasing a home can be a daunting task especially if you are a first time buyer. It is a huge investment of time and money. Often confusion is the first thing a home buyer experiences. Is now a good time to purchase a home or should I wait until next year? What will the market be like in a few months? The good news there help available to assist you in your home-buying journey. Here are a few things to consider when determining whether to purchase a new home now or wait until later.
1. You are financially able to purchase a new house.
When considering whether or not to purchase a new home, you will need to determine your financial fitness. Simply put, can you afford to buy a house? It may go without saying but you do not want to minimize this important step.
In October 2001 the first Oklahoma City Memorial Marathon was held. It’s an annual event held in honor of those impacted by the 1995 Oklahoma City bombing. And I decided I was going to be a part of it. For months I prepared, and worked on my fitness, in order to complete the race. Unfortunately, just a few weeks before the event, I injured my Achilles tendon. I was no longer fit to run a marathon.
What about you? Are you fit to run the marathon that is purchasing a new house? How much house can you afford? Most experts agree that analyzing one’s financial situation begins by looking at one’s total indebtedness, including the potential monthly mortgage payments on your home loan. The amount spent on housing should not exceed 36% of your gross annual income. However, it may be wiser to lower that to 30% so that you don’t stretch yourself too thin.
How much debt do you currently have? Take the time to calculate your entire debt including credit card debt. Mortgage payments can be estimated by using tools available online (like Rocket Mortgage). This will give you a good idea of your debt-to-income ratio. Again, a general rule of thumb is no more than 36% of your gross monthly income is spent on debt repayment.
There is much more to be said on the financial side of a home purchase like saving for a down payment, determining what type of loan is best (i.e., FHA loan, conventional, etc), etc. Just remember that like running a marathon, purchasing a house requires that one is fit for the race. So if you are fit – your debt-to-income ratio is good, you have cash for a downpayment, and can afford the maintenance of the new home, now might be a great time to purchase a home.
2. You have the choice to buy a new house.
Buying a house is a big decision and it should not be taken lightly. It involves a lot of consideration and planning. Market conditions vary from month to month. What do the coming months hold? Will the number of homes, especially single-family homes, change anytime soon? And then there are housing prices. As a result of the conditions of today’s market, higher prices are a reality. Potential buyers are frustrated even when making cash offers. Bidding wars are real. So in the midst of this seller’s market, you want to make sure that you are buying the best home at the right time, in the right place, for the best price. Finding the right home with everything you are looking for can be overwhelming and challenging.
You already know the housing market is unpredictable. It can be difficult to tell in today’s market when the right time to buy a house is. Because circumstances vary from one buyer to the next, the best time to buy a house for some was last year. For a lot of people, the coming year holds better options. Higher mortgage rates have rolled into the current market. It’s no longer a buyer’s market. The point is that you should take your own unique situation into consideration and make an informed decision on whether or not now is the time to buy.
So what is motivating you to consider purchasing a house? Is the company transferring you to a new city? Your decision might be a little easier to make. Maybe not. Are you tired of the escalation of rental prices and want to own your own home? Is the family growing and additional space is needed? Buyers are compelled by different forces. Whatever is moving you toward the purchase of a new home, be at peace with the decision. This doesn’t mean the process will be stress-free (it probably won’t) but as long as all parties involved are comfortable with moving forward, the journey of purchasing will be a much better experience.
3. You have the credit and cash to purchase your new home.
Oh, the proverbial credit score! Yes, everyone has one even if that score is zero. What is yours? If you have not already done so, the next thing to do is to know what your credit score is. Run your credit report with the three major credit bureaus (ie., Experian, Equifax, and TransUnion). Other online resources are available to help you better understand your credit score, some are even free. A higher credit score will save you much money over the life of the loan.
The information you gain from the reports can help you understand and manage your credit. For instance, in order to apply for a conventional loan, most lenders will require a credit score of 620 or higher. FHA loan requirements are geared toward those who might have a lower credit score. The minimum credit score for an FHA loan is 580. Other loans will have other types of requirements.
Down payments are usually a source of stress for home buyers, especially first-time home buyers. Typically, the larger the down payment, the more likely the lender is to work with you. When a potential home buyer comes to the table with a down payment, the lender’s risk is reduced. Therefore, you will see a better LTV or Loan-To-Value ratio. A down payment will also reduce the amount of the monthly mortgage payment.
The bottom line is the more you can save and use for a down payment the better you will be. Having enough money to use as a large down payment and strong credit places you in the best position to be in when purchasing a house.
4. You are willing to wait and work for the next best opportunity to purchase – if necessary.
There are many reasons why it might be better to wait until a later time to purchase a house. You may believe the market will turn to more favorable rates. Maybe having a down payment of 30% will put that potential mortgage payment into an amount with which you will be more comfortable. Or maybe you need to take time to improve your credit score. If any of these describe you, being willing to wait can pay rich dividends later on.
Waiting a long time for the right time to purchase a home is hard. That’s even more true for first-time home buyers as the thrill of owning a home often stunts our willingness to wait. It takes a lot of patience and discipline to resist the temptation of making decisions we know will not be good. Emotions can overwhelm us. Be patient. Wait for the right opportunity to come so you can make a better decision. Then you will have a stronger position from which to operate when the right time comes alone. And the right time will come. It usually does.
Yes, purchasing a home can be a daunting task. But when you take the time to determine your financial health, seek to make the best choice, create a strong credit & cash position from which to operate, and choose to be willing to wait on a purchase, you will be in the best position to buy your next home.