One of the biggest financial decisions you will ever make is whether to purchase a house or not. It is not only the biggest financial decision of your life but also a very emotional one. Those who have put in an offer and have experienced a bidding war and lost the house or got their dream home will agree that this process can give you extreme highs and the worst lows. The past couple of years have been very confusing for home buyers. The pandemic brought a lot of worry about the economy’s future, spurring homebuyers to put a break on their purchases. This was followed by remote work and lockdowns which pushed them to seek additional spaces. That and a low-interest environment led to low inventory, pushing the home prices higher.
With Fed consistently increasing rates, there is also upward pressure on mortgage rates. It is more than double the rates that were currently last year. Since the cost of borrowing has gone up, a lot of homebuyers are wondering if this is a good time to buy a house. The housing demand could slow down in 2023 and it is expected that there will be fewer bidding wars with more price reductions. If you are wondering whether now is a good time to buy a house, there is no right or wrong answer there. It all depends on your needs and financial position. But, to make your decision easier, ask yourself these questions and see if you are ready.
- Do you want to settle in one location?
Investing in a residential property is a long-term commitment and it is a good idea to think if you are planning on making any significant changes to your life in the near term. If you are getting married, plan to switch jobs, or want to move to a different city, it might be a good idea to wait before buying a home.
This is because your needs will change if one of these life events occurs. In case you end up buying a home, you must be able to stay long enough to offset the cost of transactions like the agent’s commission or closing costs and this can take about five years. It does not make sense to buy a house and then realize that you will shortly be moving elsewhere. Hence, the best time to take on this asset is when you are stable in your life and ready to settle in one place.
- What is your budget?
All mortgages are not expensive, but it is everything else that goes along with the home purchase that adds up. If you can figure out a budget, you will be in a better position to decide if you should buy a house or not. When creating a budget, do investigate things like property tax, maintenance costs, insurance, association dues, and home repairs. If you are moving into a bigger home, you could have additional costs.
You will even have to consider the costs of heating or cooling a big home. Take all these things into consideration and if you are okay with spending that much amount, you can proceed with the purchase. A lender will have specific requirements about the principal, taxes, and interest expenses and you will have to meet the same. You can also consider discussing the purchase with a financial expert who can help you make the right decision. The expert should also help you understand the benefits and downsides of a reverse mortgage and how you can make the most of it if you qualify.
- Do you have enough savings to make a down payment?
Even if you take a loan to pay for the home, it will require you to contribute some money towards the purchase price and this is known as a down payment. This amount will depend on the type of loan you want to take out. Many of you might have heard about the 20% requirement and this is because it is the down payment requirement when you want to avoid paying for mortgage insurance. You must keep in mind that the more you put down, the less you must borrow.
- What is your credit score?
While a lot of people do not think it is important to worry about their credit score when looking for a house, it is significant. A good credit score will have a solid impact on the loan terms and the interest rate offered. Lenders are willing to extend credit to those who have a high credit score, and your score is one thing you should check before you apply for a loan. If you see that the score is not what you would like it to be, look at different ways to improve it.
Answering these questions will help you make the right decision about buying a home.
Disclaimer: This content does not necessarily represent the views of IWB.