There’s a whole body of study and opinion around housing options and choices. We track every tick in price or interest rate to ensure we make a move at the perfect time, whether we’re buying or selling.
But there’s a lot of thought and preparation that goes into buying a home. After all, it’s one of the major milestones in most people’s lives, along with marriage, starting a family, and retirement. So, it requires some careful consideration. Here’s a rundown to help you decide if you should start prepping to buy a home.
Is now a good time to buy a house?
Unfortunately, the answer is a bit complicated. In 2020, we saw record lows in mortgage rates, but the current market is what’s known as a “seller’s market.” Essentially, there’s more demand than there are homes available – giving the seller an advantage. As a result, buyers have to compete, which pushes prices up.
However, those higher prices aren’t going anywhere soon. According to CoreLogic, homes across the nation experienced an 18% increase year-over-year (YOY) in July 2021 from July 2020. It also predicts a continued home price increase from July 2021 to July 2022. The rebounding economy, low mortgage rates, and low supply all contribute.
Waiting too long can put you out of the running for desirable areas as available homes run out and prices rise. So, if you’re considering buying a home, it might be better to act fast. That will also help you capitalize on the low mortgage rates, currently sitting around 3%. Forecasts from groups like Freddie Mac predict them to inch back up as well into 2022.
Should I buy a house?
Buying a home isn’t for everyone. But for those who do want to buy, there are a few “typical” reasons:
· you get to “own” (or at least you get to start making payments toward “owning”) your own piece of the pie;
· you can decorate and make it your own without getting permission from anyone else;
· you will most likely gain equity over time if you stay around long enough.
Buying a house is a source of pride for many. They can put down roots, start a family, or just create a space meant for them. But, ultimately, the decision depends on the type of flexibility or stability you want in the near future.
When should I buy a house?
You can find houses any time during the year. However, most people see spring as the start of home-buying season. That’s because inventory is usually well-stocked, at the risk of higher prices. Usually, experts recommend waiting until the off-season, like fall and winter, to find better deals. But the COVID-19 pandemic caused a delay in the spring of 2020. As a result, the height of activity tumbled into the following summer and fall. On top of that, the 2021 spring market started up much earlier than usual, possibly due to the consistent buyer interest. So, we didn’t really see a winter lull.
With that in mind, it’s important to focus on your financial situation. That will be your strongest indicator. If everything is in order, your finances and credit, then you can handle some competition. But to make things easier, talk with your real estate agent. They can help you time your purchase so that you have enough choice without buying at the busiest time.
What costs should I expect?
There are various expenses to prepare for when buying a home. Some to keep in mind are:
According to Zillow, the average home cost in the U.S. sits at around $303,288 as of August 2021. Of course, some areas experience higher costs than others. For example, the median home price in California broke $800,000 in April 2021, up 34.2% from the previous year. Meanwhile, neighbors in southern Nevada broke their own record at a median of $400,000.
The first real expense is the down payment, though. It’s a portion of the sale price that buyers must pay upfront before purchasing a home, representing their initial stake in ownership. Then, the rest gets financed through your mortgage.
A bigger down payment comes with its advantages. For instance, you may qualify for a better mortgage interest rate and possibly lower monthly payments. It also helps jumpstart the equity in your home, and a down of 20% or more can help you avoid mortgage insurance.
Requirements vary between lenders on the type of down payment they’re looking for from their borrowers. The most common benchmark you’ll hear about is 20%, but it’s not a must. The national median in Q3 2020 was $20,775, or 6.6% of the median home sale price, according to Attom Data Solutions.
Along with a down payment, homebuyers should set aside money for closing costs. There are fees and charges associated with closing the real estate deal, such as real estate commissions, mortgage loan underwriting, taxes, and title filings. They typically range between 2 and 4% of the total purchase price. Based on a 2019 survey from ClosingCorp, U.S. homebuyers pay an average of $5,749 to close on their home, including taxes. That can add significantly to the overall amount needed to buy a home.
Maintenance and Repair
If you want to buy a home, do yourself a favor. Calculate all of the costs of homeownership ahead of time and then set up a realistic budget. That way, you can rest assured when an unexpected repair or replacement comes along, you’ll have the funds ready to complete that work.
Most experts through the years say to allow for monthly savings above your mortgage payment of 1 to 4 percent of the original cost of the home in order to have sufficient funds when they are needed. And remember, repairs or replacements left undone start adding up over time and will be more difficult to pay for later on and may end up being more costly due to delays.
What are my next steps?
There’s the financial side of things: getting your budget in order, working on your credit score, and saving for a down payment. But there’s also research. Take your time to hire the right real estate agent for your needs and the home that suits your goals best.
A lot of this feels like it hinges on an ultimate financial choice, but at the end of the day, your housing decision may come down to an emotional one. But do yourself and your household members a big favor and do some unemotional work at the same time. Owning a home can be one of the most exciting times in life. But, if not planned well, it can be the worst nightmare a family can imagine.