The start of a new decade often spurs people on to make financial decisions and goals, and if one of yours is to buy a house, you may be wondering whether 2020 is the right time to do so. The answer? It depends.
Update: Visit our Coronavirus Resouce Center to learn how the pandemic has impacted the 2020 real state market.
Buying a home in 2020: A mixed bag
One good reason to buy a home this year? Mortgage rates are at an all-time low. As of this writing, buyers with a credit score of 760 or above could qualify for a 3.301% APR on a 30-year fixed mortgage, according to myFICO. For a $200,000 home loan, that's a monthly payment of just $876.
On the other hand, now's a challenging time to buy a house. Starter homes are in short supply, so much so that in 2018, they comprised just under 21% of available inventory. In fact, the real estate market today is largely a seller's market, giving buyers less wiggle room to negotiate.
Should you buy a home in 2020?
Whether now's the right time to buy a home should largely boil down to your personal financial circumstances more so than mortgage rates and housing market inventory. Keeping the above in mind, this year could be the right one to buy a home if you can check the following off your list:
- You have good credit. Though it's possible to qualify for a mortgage with a lower credit score, the higher yours is, the more likely you are to get approved for the most competitive rates available. And that could be your ticket to making homeownership more affordable, especially if you're forced to either pay a premium where you're looking due to it being a seller's market or buy a larger home off the bat because there are no decent starter homes available where you want to live.
- Your current debt load is manageable. Your debt-to-income ratio measures your monthly debt obligations relative to the income you bring in. The lower it is, the greater your chances of getting approved for a mortgage. But home loan approval aside, having less debt means you're better equipped to take on the expense of a home, so rather than focus on that ratio alone, think about how you're managing the debts you already have. If you can pay them easily, then taking on more debt in mortgage form is something you can likely swing, but if you're already struggling, you may want to hold off.
- You have a solid amount of savings. You need savings to not only make a down payment on your home but also to keep up with its ongoing costs and buy yourself protection in the event of unplanned repairs. Ideally, you should have enough money saved to make a 20% down payment on your home, as doing so will help you avoid private mortgage insurance, a costly premium that generally gets tacked onto your monthly mortgage payments. On top of that, you should have enough money left over to cover three to six months of essential living expenses, housing costs included.
- You have a steady job. If you've been with the same company for years, have a good reputation, and have reason to believe your job is stable, then this year may be a good one to buy. But if you're not confident in your job situation, it definitely pays to wait a few years, get settled at a new company or in a new career, and then move forward with your homebuying plans.
Is 2020 the right year for you to buy a house? It depends on where you stand financially. Make sure you're ready before taking that leap so you don't regret the decision after the fact.
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