While certain buying decisions can be made on a whim, others require careful consideration. The decision to buy a home is a big one, and is likely the biggest expenditure you’ll ever make in your entire life.
While there are several factors you need to consider before pouncing on a property, now just might be the perfect time to buy – as long as all your ducks are in a row.
Are Your Finances in Order?
Before you start pounding the pavement in search of your dream home, make sure your finances are in good order first. To be able to qualify for a mortgage, your lender is going to want to see that you’re capable of managing your current bills and debts.
You should pay your bills on time and in full – your lender is going to look for this pattern. Your debt-to-income ratio (the percentage of your monthly gross income that goes towards paying off your current debts) should be no higher than 43% – the lower the better.
Even though there are loan programs available that allow you to put a low down payment towards a home, you should still have a cushion of savings to cover closing costs, moving expenses, and a deposit. Saving money and keeping up with a healthy credit score are critical elements to being a home owner.
What Can You Afford?
According to the National Association of Home Builders, 62.8% of homes were affordable in the last quarter of 2014. This number is based on families earning the median income of $63,900 with good credit, and 30-year fixed mortgage interest rates.
That’s good news, but of course this may not necessarily suit your specific financial standing. Managing a mortgage takes a certain level of commitment, so make sure you’re ready for the financial responsibility before you buy. Don’t forget about about other home expenses on top of your mortgage, such as home insurance, property taxes, utilities, and regular home maintenance costs.
Consider your plans for the future, and how you’ll be spending your money. A mortgage lender will tell you how much money you can borrow to put towards a home purchase, but how much you spend on other things aside from your mortgage is up to you to determine.
Your best bet is to sit down with a financial advisor to work out all the nitty gritty and crunch some serious numbers to help you determine what you can comfortably afford in a home purchase. From there, you can narrow down your choices during your home search.
Mortgage Rates Are Still Near Historic Lows
The rate that your lender offers you plays a huge role in how much you’ll be paying in mortgage payments every month. Obviously, the lower the rate, the less your mortgage payments will be. Rates have been rock bottom for a while now, making this a prime time to lock in.
A 30-year fixed mortgage rate is an ideal option, as it doesn’t put you at risk for any rate fluctuation shocks that may happen in the future. Right now, the 30-year fixed rate is 3.86%, down from 4.23% at the same time last year. The rate for a 15-year fixed rate is currently 3.07%, but a 30-year fixed is a more stable option.
With the current rate trend being the way it is, now is a good time to buy and take advantage of these low rates before they start to rise. Of course, rates could go even lower, but why say “no” to the perfect home in anticipation of this lower rate (which may or may not happen)?
Actually, rates are expected to move higher in the near future. Fannie Mae predicts rates to reach 4.40% by 2016, and Freddie Mac predicts 4.6%. If these predictions are accurate, now sounds like a good time to buy.
Forget About Timing the Market
Don’t waste your time trying to time a real estate transaction. You’re not playing the stock market. When you’re on the prowl for a home purchase, circumstances can change all the time.
Instead, do some homework, get your finances in order, figure out what’s affordable for you, be realistic, and start looking. Don’t buy the a property just because you want to take advantage of low rates or low prices.
Basically, the best time to buy a house is when you can actually afford to do so. Forget about predicting an increase in home values or when mortgage interest rates are set to climb. Unless you have a crystal ball, these figures are nearly impossibly to accurately forecast. If you find the perfect home, and you can comfortably afford it, there’s no reason why you shouldn’t buy it.
Regardless of what type of market it happens to be at the time of your purchase, you can make it happen. Team up with a realtor and mortgage specialist to help you weight your options, and to ensure you’re making an informed and healthy purchasing decision.