A common question that most real estate and mortgage professionals are asked is whether or not it is a good time to buy a home. That is a hard question to answer because there really should be two more words in that question: is it a good time for me to buy a home. You see, the answer depends much more on your current situation and your outlook for the future.
A significant factor in the answer to whether or not it is a good time for you to buy a home is what your goals would be. Are you buying a home for security and stability for your family or are you single and buying a home to live in, fix, up and flip in a couple of years? How long would you expect to live in the home? Questions like these provide some basis to evaluate whether market conditions are favorable to you. For example, if you reasonably expect to move in a couple of years, then you would have to consider where the housing market is expected to be in a couple of years when you need to sell.
Other critical questions to ask to decide if it is a good time for you to buy a home:
How much can I afford?
This is a critical question that you should answer even before you speak to a Loan Officer like me. I can, and will, review your income and payment obligations and apply a formula to let you know what the rule-makers like Fannie Mae and Freddie Mac say you can afford, but the reality is that you know far better than I do what you can really afford. That’s because no formula can completely account for the priorities of your lifestyle and what you want. You should review your finances and determine what a comfortable monthly payment is for you.
Of course, this doesn’t mean you cannot spend more, assuming you are qualified for more, if the home you absolutely want requires more than the comfortable payment you determined. But having that comfortable number set at the beginning will help you understand what, if any, sacrifices you may need to make so you can decide what you want more.
What is my “break the glass” situation?
If you spend even a moderate amount of time reading articles like this one, you will most likely read one that says you must save up to put 20% down when you buy a home. That is absolutely not true! In fact, less than 20% of all homebuyers, (5% of first-time buyers) put 20% down when they buy a home. However, there is something you should save up for before you buy a home: a safety net.
Truthfully, whether you decide to buy a home or not it is a good idea to build up a safety net. We simply never know what is going to happen. An accident or illness could prevent you from working for weeks or months or your car may unexpectedly need to be replaced. When you own a home, unexpected repairs on major systems can be costly or, regardless of what the current conditions are now, you may suddenly need to sell at some point in the future and the market may not be favorable. Whether you keep your rainy-day fund in the bank or in a 401k that provides for hardship loans or withdraws, it is prudent to have some money available for unexpected circumstances.
Of course, none of this is to say that market conditions are not important; however, current conditions are typically not the most important factors. One primary reason why that is the case is because no one can predict what the conditions will be in the future and buying a home is usually a long-term proposition. Whether or not it is a good time for you is a much more immediate question. As always, feel free to contact me at your convenience and I will provide any market or mortgage information you need to make informed decisions.