What you should know, but didn't know to ask...

When Is It the Best Time to Buy a House?

Signing for New Home

Knowing the Variables

The most important factor to consider when deciding if it is the right time to purchase a home is not the current market but your personal financial situation. If you want to do it right, you need a good credit score and a healthy savings account.

If you are confident you earn an “A” in both of those categories, you can move on to examining the current real estate market. The optimum time to buy is different for everyone (no one is in the same situation), but there are some basic considerations to take into account when making what may be the largest purchase of your life.

Interest Rates

Your monthly payment is partly determined by the interest rate of your loan. You don’t have any say in the interest rate, but there are things you can do to entice companies to offer you a lower rate.

A credit score is an adult report card. The number, ranging on a scale of 300 to 800, rates your ability to pay the companies you owe in a timely manner and weighs your debt-to-income ratio. Your debt-to-income ratio is a formula calculating how much debt you have in relation to your income. Obviously, you want a higher income and less debt.

A high score puts you in a good position for a lower interest rate. If you are a 20-something, it is possible that you have established very little or no credit. There are ways to establish a healthy credit score, and you should do so at least a year before you purchase a home.

Shop around for the best interest rate. Contact various financial institutions and ask for their best rate before committing to a lender and interest rate.

Stability at Work and Home

Regardless of the market, you should not purchase a home if you know you plan to live there for less than three years. Markets fluctuate regularly. The value of a home builds over time, so the longer you live in your home, the better your chance of profiting when it is time to sell. Also, remaining in your home longer allows you to build equity. So, ensure that you can make the three-year commitment to the house, neighborhood, commute and school zone.

Your income is paramount in purchasing a home and making regular payments. If your income stops, you’re in trouble. Before you begin to browse the classifieds, be confident in your job security and the role you play at your company. After a year of employment, you should have a pretty good idea about whether or not you fit in and like the work you do, and if your role is stable.

The Real Estate Market

The real estate market is constantly fluctuating and the media is continually sending mixed messages—today is a good time to buy, yesterday was a good time to sell. However, the market usually falls into one of two categories:

  • A buyer’s market: When supply exceeds demand it is considered a buyer’s market. This market is ideal for families looking to purchase a home because prices are usually lower and there is a larger inventory of homes on the market.
  • A seller’s market: When demand exceeds supply it is considered a seller’s market. This market is ideal for sellers because they can often see a higher rate of return on their home, as home-seekers may be willing to pay more for a property because options are limited, homes sell fast, and bidding wars may occur.

The market varies depending on where you live (if you want to sell your current home), or where you are looking to purchase. There is no perfect market to purchase your home and no one can predict the state of the market when you are ready to sell your home. To determine if the real estate market in your community is favoring buyers or sellers, contact a local real estate agent.

Purchasing a home is a big decision. It is an exciting time in anyone’s life, so it is important to refrain from diving in until you are fiscally ready to handle the responsibility, and confident that you can do so. A solid savings account and a history of good money maintenance are crucial.

If you are not ready now, don’t worry, the perfect home is worth the wait.

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