Is Now a Good Time to Buy a House?

Is now a good time to buy a house?

That question is on a lot of people’s minds these days. With rising home prices, and interest rates higher than they’ve been in decades, whether to buy a house now is a very good question.

Are you ready for the answer. Well, here it is...

…It depends.

OK, so maybe the answer is not so simple. BUT, there are a few questions to ask yourself to help determine whether now is a good time for you to buy.

The first question is do you plan on staying in your new home for the next several years?

The fact that home prices are going up might lead one to think it is be better to rent for now. However, if the answer to the question above is ‘yes’, then now might be a very good time to buy. There is a saying, “Marry the house and date the rate.” What that means is, you’re in it for the long haul with the house, but interest rates change (they most likely will eventually go down), and you will have an opportunity in the future to refinance at a lower rate. Though you might be paying a higher monthly payment in the meantime, at least it will not be rent money going towards someone else’s equity. You will be building your own equity, especially since home prices are expected to continue to increase.

Another consideration is that, along with home prices, rent also continues to increase. Below are two graphs that show the historic trends of of both home prices and rent over the past 60 years.

So, if you rent, it is likely your monthly payment will continue to increase over the coming years. If you buy a house, however, you could conceivably lock that payment in for the next 30 years. And again, you would be putting that money toward building your own equity, as opposed to someone else’s.

The greater the difference between the original rate and the new rate when refinancing, the less time it will take to recuperate the costs of refinancing, but typically that will take several years. So, if you are not planning on staying in the home for several years, then it might be better to wait before you buy.

A second question to ask yourself is have you saved enough money for a downpayment?

Having enough money for a downpayment is a very important step. It is typically the determining factor in buying a home, especially for first time home buyers.

Having more money saved not only helps with the home buying process, but could also get you a lower loan rate. In addition to income and debt, mortgage lenders also look at cash reserves to help assess the loan risk (risk of the buyer not being able to make a payment and possibly defaulting on the loan). Lenders prefer to see that enough money has also been saved for emergencies and other unexpected expenses.

Lastly, do you have a good credit score?

The importance of having an accurate credit score is often overlooked. If you are not sure what your real credit score is, then the time to look into this is today. This will play a big role in the loan rate your lender will be able to give you. The following table indicates how lenders view credit scores. And within a given range, even a 20 point increase can improve the interest rates available to you.

Talk to a lender as soon as possible to get your actual credit score. (By the way, if you do not already have a go-to lender, we work with several great ones and would be glad to make an introduction.)

We recommend not relying on online credit score providers because there is a tendency to provide inaccurate numbers which can lead to dashed hopes. The credit score most lenders will use is that determined by the Fair Isaac Corporation, and the number they provide is commonly referred to as your FICO (pronounced FYE-cō) score. Most lenders do not rely on other sources, and in fact, share a common saying in the lending world -

“If it’s not FICO, it’s FAKE-O” .

Your lender can also advise you regarding making some changes now in your personal finances to maximize your FICO score over the next few months while you prepare to take that big step of buying a house.

Buying a home is a personal decision. And it is a big decision. We hope this helps with your decision making process.

We invite you to reach out to us with any questions you might have regarding buying or selling a home or an investment property.

For information about the home buying process, please click the button below to download a copy of our home buyers guide.