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Editor’s Note: This story was originally Penny Horder.
Is now the time to buy a house?
This is an evergreen question, one that is always relevant and very personal. Only you can answer whether it makes sense to buy a home at any given time.
That said, unpredictable interest rates and the realities of an ever-changing housing market influence your decisions. And now these indicators are flashing red.
As of early 2023, consumer confidence is pretty low, according to Fannie Mae’s. Home Buying Sentiment IndexOnly 17% of consumers believe now is a good time to buy a home. who is right
Is now the time to buy a house?
As 2023 begins, the dramatic rise in house prices seen in 2021 has stalled. in fact, house prices fell Not only that, but some experts believe the constant leaks could be a stream. price collapse come up.
In addition, the 30-year fixed interest rate of the mortgage is hovering around 6.5% — Highest in 20 years.
When asked about the outlook for mortgage rates in 2023, eight industry insiders said mortgage report They expected interest rates to move between 5% and 9%.
Inflation may continue to push interest rates higher, but a looming recession is likely to push them lower. Ongoing inflation, Federal Reserve policy, and fears of an imminent recession make forecasting interest rates difficult in the near future.
That said, if you plan to buy a home soon, you have options. You just need to be prepared to take on that financial burden.
4 Questions to Consider Before Buying a Home
Ultimately, whether you should Buy a house At the moment, it depends more on how ready we are and our financial situation than on market conditions.
Before buying a home (the one-time big purchase most people make), you need to have a solid financial plan in place. There are a few things to consider before making that purchase.
1. How long do you plan to stay in this house?
The future isn’t always predictable — life happens, after all — but you should think about major decisions in your near future.
Do you have any prospects of getting married? Do you plan to have children in the next 5-10 years? How permanent is your current job situation? Would you like to stay there long term?
If any of these situations are in flux, we recommend pausing Buy a house right now. That two-bedroom condo can get a little tight when you start having kids. It can become a burden.
The best time to buy a home is when your personal and professional life is fairly stable. This does not mean that everything should be set perfectly. However, you should carefully consider the pros of buying a home and the potential cons of moving in the short term, and consider what you will do with it because of the change in your life.
2. How much down payment can I make?
Traditional wisdom has always told you to pay a 20% down payment to avoid private mortgage insurance, and PMI will cover you if you stop paying.
of Median Current Selling Price A US home is $359,000. In other words, to avoid PMI, the buyer would have to pay a down payment of $71,800. For most buyers, planning and aggressive savings will be required before purchasing.
The higher the security deposit, the lower the mortgage and the lower the monthly payments. So, after deducting the down payment amount, he would instead borrow $287,200. Most lenders require a minimum down payment of around 3% to 5%, so if your budget allows for more monthly payments, you have that option (more on that below).
First-time home buyers usually have more options — lower down payments and minimum credit scores. These include:
- FHA loan: If you qualify, you can consider an FHA loan backed by the Federal Housing Administration. These loans require a 3.5% down payment and a minimum credit score of 580. Or, if your down payment is 10%, a credit score of 500 is enough.
- VA loan: Veterans Affairs loans are options for qualified military and veterans. They require no down payment and are usually offered at low interest rates. A financing fee may be required that can be built into the entire mortgage.
- USDA loan: If you want to live in the countryside, you may be eligible for a loan from the U.S. Department of Agriculture. These loans require no down payment. However, you must live in the target area.
Remember, the lower your initial costs, the less debt you will carry over the life of your mortgage.
3. What about your credit score?
make sure you know credit score Well before starting the process of buying a home. This small number greatly influences your loan options when signing a mortgage.
The standard magic number required for traditional loans is 620. Anything between 670 and 739 is considered “good.” 740-799 is considered “very good”. Anything over 800 means you have “excellent” credit. The higher your credit score, the better your loan options and interest rates.
Non-traditional loans require a higher credit score. One example is jumbo loans, which typically require a credit score of around 700. However, there are ways to buy a home with a lower credit score.
If you’re looking to buy a home in the near future, it’s very important to make sure you understand where your credit score stands and how it can improve over time.
There are many ways to be proactive about improving your credit score. Pay on time, apply for credit selectively, or even request a credit limit increase but not use it.
4. Is your budget ready?
The median mortgage payment in the United States is $1,100, according to the US. US Housing Survey dataOf course, that number depends on where you live, the length of your mortgage, your down payment, and your interest rate.
But if that was all you were expected to pay. It’s easy to forget all the other fees added to your mortgage payment.taxes, insurance, and maybe HOA fee And then there’s mortgage insurance — and all the ongoing maintenance and other monthly expenses that come with owning a home.
How to find out if you can afford a home
Let’s use an example. Let’s say you live in Nashville, Tennessee. The real estate market is thriving, but not out of control. By the end of 2022, average cost of a house in nashville It was $461,000.
Also, let’s say you live in a homeowners association. Luckily, Tennessee has the fifth lowest HOA cost, with a median monthly cost of $150.
Suppose you have good credit and the current average interest rate is 6.5%.
Finally, assume you can manage a 10% down payment on a 30-year mortgage.
Finally, let’s assume your credit score is also good enough to get you a decent PMI rate of around 0.99%.
Let’s work out the numbers.
- Mortgage Payments: A purchase price of $461,000 plus a 10% down payment ($46,100) results in a $400,000 mortgage. Including principal and interest, the monthly payment is $2,622. But that’s just the beginning.
- Taxes: Nashville zip codes and their corresponding property taxes cost approximately $288 per month.
- Insurance: Homeowners insurance is approximately $66 per month.
- HOA Fee: Add $150, which is the median monthly HOA payment in Tennessee.
- PMI: Next you need to pay PMI as you need to pay less than 20% down payment. Your PMI rate of 0.99% translates to a premium of $4,104 per year, or $342 per month. Please note that once you reach 20% shares, you no longer need to make this payment. With this standard monthly payment and no extra payments, it would take just under eight years.
So you’re actually paying $3,468 per month for your $400,000 mortgage.
The problem is future Nashville homeowners. Do you have the flexibility of $3,468 in your current budget?
If not, now is probably not the best time to buy a home.
Needless to say, we now say, your numbers can vary greatly depending on where you live. Rural western homes are much cheaper. pay you to move ) Property taxes and HOA fees also vary greatly depending on where you live.
The point of this exercise is to show you that you need to know exactly what you’re getting before jumping into a big purchase like a house.
But what about interest rates?
Saying what is true now may not be true five years from now.As of February 2023, degree of interest 30-year mortgage borrowers are up 7%. In 2015, it hovered between 3% and 4%. And at the beginning of 2021, it was as low as 2.7%.
If you’re looking to buy a home now, you can always do so, even if interest rates are high. refinancing When interest rates fall, history shows that they will definitely fall.
In the $400,000 example, you would be paying about $800 more per month at an interest rate of 6.8% versus an interest rate of 3.8%. This is a big difference and something to keep in mind when deciding if now is the right time.
So is it a good time to buy a home?
Probably not the best time to buy based on what many experts are saying and how the general public feels about the housing market. We are definitely in a sellers market right now .
But as we’ve seen, there are many variables involved in how that decision is made. Home values ​​and interest rates are so high that most buyers are feeling insecure right now. However, your situation may be different.
Housing prices are always fluctuating. Interest rates are constantly adjusted. What we see this time next year could be very different from what we see now.
Know your budget. Know your credit score. Understand how much down payment you can afford and how it affects your monthly payments. And be realistic about your current living situation and how it might affect where you live in the near future.