Is now a good time to buy a house?

Buying a house is a big decision. It’s a major investment, both in time and money, and it’s often a sign that you’re settling down in one place for an extended period. It’s also important from a personal perspective, as it’s less about where you keep your belongings and more about where you belong.

At the same time, market conditions, the state of the economy and your personal finances all play big roles in determining if it is a good time to buy a house, condo or townhome. Whether you’ve only started thinking about a new home or you’re ready to move tomorrow, this blog can guide you toward the right decision for you and your family.

Below, we’ve outlined the major factors to consider, as well as the right questions to ask, to determine if now is the right time to buy a house!

Market conditions

In a perfect world, home prices would match up with your savings, and you’d buy during periods of normal or low inflation. Unfortunately, real life doesn’t always happen that way, and determining whether it’s the right time to buy a house can be challenging.

Before you start your home search, it’s always a good idea to research the current condition of the real estate market and economy. For example, amid the pandemic recovery and periods of high inflation, it may have been more difficult to purchase a home. Here are some questions you can start with:

1. How is the economy doing? When the economy is doing well, inflation and mortgage rates tend to rise. When the economy isn’t doing well, rates tend to fall, possibly benefitting homebuyers.
2. How high is the current demand for housing? If demand exceeds supply, you’ll be faced with a seller’s market. That can mean higher-priced homes with more competition and quicker sales. It can also mean sellers are less willing to make concessions, like contributing to closing costs.
3. Is this a popular time of year for buying a home? According to the National Association of Realtors, home sales are slowest from December to February, and they’re highest from April to June.¹ Hot weather may mean a hot market, which in turn could mean higher prices and fewer choices.

Tip: While bear markets may bring housing costs down, they can also bring market investments down. If your goal is to purchase a home, it may be a good idea to keep some money in less volatile saving vehicles like a savings account!

Qualifying for a loan

Credit is a major deciding factor in qualifying for a home loan. While the minimum credit score you’ll need will vary from lender to lender, a score in the high 700s or 800s is considered excellent and will give you the best shot of getting preapproved and qualifying for a low rate. If you need to boost your credit score, focus on paying down your current debt and paying your bills on time.

Debt-to-income (DTI) ratio is also key. To calculate your DTI, divide your total monthly debt payments by your gross monthly income. Most lenders prefer a DTI of 36% or lower, but they may accept up to 45% for some conventional loans.²

Tip: While some debt can be necessary, paying off bad, high-interest debt like credit cards and cash advances can be a good way to cut your DTI.

Personal considerations

Remember, it’s your home, so the most important factor is your personal financial situation. Are you ready to add a mortgage payment to your monthly bills? Are you prepared for the added costs of owning a home, like repairs, insurance, HOA fees and taxes? Traditionally, experts recommend that all your housing costs stay below 30% of your gross income.³

Also, consider a few personal factors:

1. Are you ready to commit to a home? Again, it’s more than a payment. It’s a commitment to a location. While you can always sell your home and move, the process can be a headache personally and financially.
2. Can you cover the down payment and closing costs? So much of becoming a homebuyer is done in the years leading up to buying your house. You will usually need to put down somewhere between 3% and 20% of the total cost of the property. You may also have to pay closing fees including the inspection, appraisal, title fees and more. Luckily, some lenders offer closing assistance programs. For example, you can get a credit of up to $7,500 toward your closing costswhen you participate in the Home Plus program from Desert Financial.⁴
3. Do you have a reliable job? When you have a mortgage, that job means more than ever. Make sure your job is dependable and your employer has a long-term outlook before committing to a major monthly payment.
4. Are you ready to be a homeowner? It’s important to remember that homeownership won’t always be pretty. If the air conditioning or the hot water go out, you have to schedule and pay for the repair. If your fridge or washing machine break, you’re in charge of replacing them. Of course, you can offset some of these costs in the first year with a home warranty that covers major appliances, systems and more, but it can get expensive down the line. At the same time, that money and maintenance can be worth it for the rewarding feeling of having a place to call your own.

Tip: Private mortgage insurance (PMI) may be tacked onto the monthly and overall cost of owning your home. PMI protects the lender if you can’t make your monthly payment, but the cost is typically passed on to you. The best way to avoid it is usually by making at least a 20% down payment or requesting that it be canceled once you have 20% equity in your home.

So, is it a good time to buy a house?

As with most financial and personal questions, the answer is: It depends. If market conditions, the state of the economy, your personal financial circumstances and your goals all point toward now being the right time to become a homeowner, it may be the right time for you!

It can also be a great way to jumpstart the accumulation of your personal wealth as you build equity in your home. That’s one clear benefit of owning your home over renting, which puts your monthly payments into the property owner’s pocket. But again, timing is personal, and it’s always a good idea to get a complete understanding of internal and external factors.

As always, Desert Financial is here to help! From mortgage assistance to personalized financial planning, our team of experienced professionals can help you navigate tough questions and set you up for success on your homebuying journey!