Thinking about buying a home?
Consider these factors to help get the timing right
Your current finances
This is a big one! Personal circumstances carry the most weight in determining whether you’re ready to buy a home. Above all, you must be financially prepared to cover the up-front purchase price, which includes mortgage fees and closing costs, as well as the ongoing costs of homeownership, including property taxes, insurance, utilities, and home maintenance.
Think about these questions:
- What monthly mortgage payment can I afford? As a starting point, look for a mortgage payment that is 25% or less of your gross monthly income. For example, if your monthly gross income is $10,000, a manageable mortgage payment might be $2,500 ($10,000 x 0.25). But be sure to adjust that figure based on your household budget. Remember to include ongoing costs of homeownership when determining your household budget.
- How much other debt do I have? Lenders consider your overall debt-to-income (DTI) ratio when approving you for a mortgage. Standards and guidelines vary, but most lenders like to see a DTI below 35%. However, some mortgage lenders allow up to 45% DTI (depending on the loan product), and some FHA-insured loans allow a 50% DTI. It’s important that you feel comfortable that you’ll be able to pay the monthly payment, even if the lender allows a higher DTI.
- Is my job secure? A home should be a long-term purchase. If your employment situation is uncertain or you want the flexibility to leave your current location for another job, then it might not make sense to commit to a mortgage.
- Am I on track with other savings needs? Make sure you already have sufficient emergency savings and a plan to continue saving toward other long-term goals like retirement. You want to be able to cover your down payment and other costs related to a home purchase without dipping into savings earmarked for other purposes.
Your mortgage interest rate affects your monthly payments and your total cost of borrowing over the lifetime of your loan. When interest rates are low — as they have been in recent years — owning a home may be more affordable.
However, the interest you pay on your home loan often depends on other personal factors, such as your credit score. Borrowers with a stronger credit score may receive lower interest rates.
Home prices have risen in many areas of the country in recent years, driven by low interest rates and a low supply of homes to buy.
Low rates and home supply that exceeds buyer demand usually create the best scenario for buyers, which is why that’s called a “buyer’s market.” A seller’s market is when demand exceeds supply. Since real estate market conditions are local, it’s a good idea to seek the expertise of a trusted real estate agent. Good real estate professionals will know the local market best and can advise you on local market factors, as well as the bidding process and making an offer.
Down payment and closing costs
How much you have saved for a down payment may influence when it makes sense to buy a home. A larger down payment may result in a lower monthly mortgage payment. If your down payment is less than 20% of your home’s purchase price, you may have to buy private mortgage insurance (PMI) or pay other types of fees or higher closing costs, which increases the cost of the loan and also increases your monthly payment.
You also need enough savings to cover those closing costs, which may include loan application fees, origination fees, title fees, as well as up-front tax and insurance payments. Closing costs tend to be about 2% to 4% of your loan amount.
The time of year may affect the supply and demand of available homes. Spring and summer typically see more homes on the market — but also potentially more competition from other buyers. About 40% of homes are sold from May through August. Meanwhile, only 6% of home sales happen in January and February.
What will most affect your decision about whether or not to buy a home now?
While there’s no perfect time to buy, making a plan in the context of your current budget and long-term goals may help you feel confident that you’re ready to take this important step. That way, you may continue to monitor the housing market and look for opportunities to take advantage of favorable conditions.
Thank you for reading!
Blackrock Investments and Finance, Inc.
direct (951) 963-4023 | cell (626) 731-4485 |fax (626) 529-0850
email firstname.lastname@example.org | web www.realtorjudyha.com
CA DRE: 01884583