Before you decide to buy a home, make sure you're financially ready for this big commitment.
Buying a home is a huge financial decision. That's why it's so important to make sure the time is right.
Let's take a look at two big factors you should consider when trying to decide if it's time to start shopping for a house: the economic factors and your personal finances.
Should you buy a home in this housing market at current mortgage rates?
First things first: You need to make sure economic conditions are right for you to buy a home. And right now, the answer to that question isn't very clear.
Mortgage rates have been rising steadily for weeks. This has resulted in the number of applications for new mortgage loans falling. But while this may seem like bad news for would-be home buyers, the reality is that rates repeatedly hit record lows last year, so there was really nowhere for them to go but up.
While the average rates for a home loan are definitely higher than they were at the start of the year, they are still low by historical standards. That means fear of a high rate shouldn't cause you to give up on your dreams of owning a home, especially if you have the financial credentials to qualify for a competitive rate.
In addition to rising mortgage rates, the real estate market itself isn't great for buyers right now. Housing inventory has recently hit record lows. With fewer homes for sale, prices are naturally being driven up. That means you may have a harder time finding a home, and you may have to pay more when you do find one.
That said, the pandemic appears to be slowly coming to an end, states are lifting their lockdowns, and spring homebuying season is here. As a result, it's likely that more sellers will soon be listing their properties, if for no other reason than to try and sell while property values are fairly high.
If your area sees an influx of new homes on the market during the spring and summer selling season, this could give you more of an opportunity to find a home you love without getting involved in a bidding war.
Are you financially ready to buy a home?
While economic conditions should ideally be right before you purchase a home, buying a house isn't purely a financial choice.
Many people opt to purchase because of the lifestyle that homeownership can provide. If you are interested in buying a home to set down roots, you may not want to wait until market conditions are perfect to do so -- especially since it's impossible to predict whether mortgage rates and home prices will rise or fall.
One thing you definitely need to do, though, is make sure you're in a financial position to buy. This means you should have:
- Plans to remain in your home for at least two years. Selling sooner than that would mean you'd be unlikely to make up for transaction costs.
- Enough funds for a down payment and closing costs. Ideally, you'll want a 20% down payment. For more information, our guide can help you answer the question, "How much house can I afford?"
- Enough money to cover unexpected expenses. An emergency fund can help you avoid being caught off guard by surprise repairs.
- A stable job and good credit. Lenders will require proof of income and will check your credit history before giving you a mortgage loan.
If you're in a financial position to purchase, can find a home within your budget, and can qualify for a mortgage at a competitive rate, now is most likely a good time to buy a home. It just depends on your personal situation and whether you're ready to buy.
And when you are ready, make sure to read our home buyer checklist to help prepare you for the home buying process.
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