3 Reasons You Should Not Buy a Home This Summer

Mortgage rates are at their lowest level in a year, but that doesn't automatically mean its a good time to buy. Here are three reasons you may be better off waiting.

Jun 8, 2014 at 11:00AM

If you're thinking about buying a home, now may seem like a tempting time to finally take the plunge. Mortgage rates are the lowest they've been in a year, and we keep hearing that rates are expected to rise over the next several years.

However, there are a few reasons you might not want to buy a house this summer.

Don't buy when everyone else is
According to realtor.com, the spring and summer months are the best time to sell a home, because that's when the most buyers are in the market.

Families like to move when their kids aren't in school, and it is just more convenient to move in nice weather than in frigid winter weather. In fact, about 50% of all home sales take place during the summer alone.

House For Sale Public Domain

Like with any investment or purchase, buying when everyone else wants to buy is rarely the best idea. Sellers generally see more activity during the summer, which means more offers and the ability to hold out for the price they really want.

Realtor.com also says winter is the least favorable time of year for sellers. Generally, those sellers who put their homes on the market in the winter are more eager to move, and are more willing to make deals. As a buyer, the lower demand also means you'll get more personal attention from professionals like real estate agents, home inspectors, and closing attorneys, making the whole process easier and more pleasant.

How's your credit?
While lending standards have loosened a bit since the mortgage crisis ended, they are still very tight on a historical basis.

It's true that you can qualify for an FHA loan with less-than-perfect credit, but that's not always a good idea. An FHA loan might even be much more expensive than renting a similar home, but I'll discuss that in more detail shortly.

In order to qualify for good interest rates on a conventional loan, you'll need a FICO score of 700 or above. Below that level, it becomes much more expensive to borrow. For instance, a score of 720 (considered to be very good) should get you a 30-year rate of about 3.99% as of this writing, but a 650 will cause the rate to jump to around 4.81%, according to myfico.com. On a $200,000 mortgage, this is the difference between monthly payments of $954 and $1,051.

If you have a credit score that's not excellent, your best bet may be to focus your efforts on improving your credit. If you can save a few hundred dollars a month by waiting until your credit score is a little better, it could make more sense to rent for the time being.

For information on improving your FICO score (the one most lenders use), there is a guide on the myfico.com website that provides details of what makes up your score and how to improve it.

If you don't have enough cash, don't buy!
Unless you have a pretty good stockpile of cash to put toward your home, buying might be a lot more expensive than you think.

There are some low down payment options out there, mainly FHA loans, but they come at a cost. And now may be a bad time to get in, since the costs associated with FHA loans are pretty high and can increase further at any time.


Currently, to get an FHA loan, you have to pay both an upfront mortgage insurance premium and monthly payments. You used to be able to drop the monthly mortgage insurance payments after reaching a loan-to-value ratio of 78%, but now must be paid for the life of the loan if you put 10% or less down. The upfront mortgage payment costs 1.75% of the loan amount and an annual premium of up to 1.35% of the loan amount is added to your monthly payments.

So, on a $200,000 loan, you can add $3,500 to your closing costs and $225 to every monthly payment. That's not to mention the loan itself will have a higher balance if you only put a small amount down. Depending on how small your down payment is, you could easily pay $500 extra per month versus a conventional loan for the exact same house.

The bottom line is, if you don't have 20% to put down on a home, you're probably better off renting for now and saving as much as you can.

In a nutshell
Your house will probably be the largest purchase of your life, so it's important to wait for the best time to buy.

While nobody has a crystal ball that tells us what the housing market will do, it's easy to see how you might want to wait for fewer buyers to compete with, more cash to put down, and better credit to make your mortgage cheaper and easier to get. It makes the most sense to buy a house if it's cheaper than rent would be, and if you get these three parts of the buying process right it certainly should be.

Is this a better investment than buying a home?
Recent tax increases have affected nearly every American taxpayer. But with the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers