When To Buy A Home
The amount of time it takes to buy a house is different for everyone. Typically, the longest part of the process is shopping for a home, touring properties and deciding on the right one for you. Working with a real estate agent and knowing what you want and need in a property can help you find your perfect home a little faster.
when to buy a home
Start by determining how much home you can afford. Play around with a mortgage calculator to get an estimate of your monthly mortgage payment at different home prices. You may also want to create a wish list that includes things you want and absolutely need in a home. This will make shopping for a property easier, and help you narrow down your search.
Once you have a rough idea of what you want in a home, get preapproved for a mortgage. Your lender will look at your financial documentation and tell you how much of a loan you can get, which can give you a more realistic idea of how much home you can afford. From there, you can work with a qualified real estate agent in your area and begin your hunt for the perfect home.
Buying or selling a home is one of the biggest financial decisions an individual will ever make. Our real estate reporters and editors focus on educating consumers about this life-changing transaction and how to navigate the complex and ever-changing housing market. From finding an agent to closing and beyond, our goal is to help you feel confident that you're making the best, and smartest, real estate deal possible.
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Renting gives you the freedom to move when you want, with none of the responsibilities of homeownership. But at some point, most people yearn for their own home. Buying a house is a good way to start building financial security. As you pay down the mortgage, you build up home equity, which is a valuable financial resource.
Although borrowers with a credit score as low as 500 can qualify for some home loans, they will be required to make bigger down payments and pay higher rates. A good credit score gets you better interest rates and loan terms.
Down payment requirements typically depend on the type of home loan you get. For conventional loans, 20 percent down is usually required if you want to avoid paying private mortgage insurance. Some mortgages insured by the Federal Housing Administration, known as FHA loans, require just 3.5 percent down. Fannie Mae and Freddie Mac back some mortgage products that require just 3 percent down; and loans guaranteed by the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture require no down payment at all.
Many renters decide to purchase a home after a major life event, such as getting married, says Henry Yoshida, a certified financial planner and CEO of Rocket Dollar, a Texas-based provider of self-directed retirement accounts. A growing family, a new job and children leaving the nest are other common catalysts for people to buy a home.
Buying a home involves a lot of upfront costs that can take a few years to recoup, so if you anticipate moving before you can recover those expenses, homeownership might not be the right choice for right now.
Ready to leave renting behind? Before you start looking at homes for sale, shop around, compare lenders and get preapproved for a mortgage. Preapproval helps you know how much house you can afford and what loan program is best for your situation, says Ben Creamer, principal and managing broker of Downtown Realty Company in Chicago.
Does it mean you should start shopping for a home now? Below, CNBC Select analyzes the current housing market and offers a few important questions you should consider before moving on with the purchase.
During the pandemic, mortgage rates plummeted below 3%, flooding the real estate market with homebuyers trying to snag a good rate. Craziness ensued. People snatched up houses at a record speed, with many buyers waiving contingencies and bidding over the asking price. As a result, between May 2020 and May 2022, the median home price shot up 45% from $299,000 to $433,000, according to Redfin data.
Today, the market looks very different. In most places, home prices have only slightly dropped because inventory remains limited. Mortgage rates, on the other hand, have about doubled since 2021. This has made homebuyers reluctant and led to a continuous decline in home sales.
Yun also forecasts no significant changes in home prices on the national level this year. The only exception is overheated markets such as San Francisco where prices might drop as much as 15%. "So if someone is living in the Bay Area, maybe they should be on the lookout for some meaningful decline in home prices," he says. "But for most parts of America, I think there will be a very small movement in prices."
The other consideration, Yun notes, is that homes are sitting on the market longer now. Even though mortgage rates are high compared to two years ago, some buyers may get more negotiation power, especially for properties that have been lingering in the marketplace for a while.
Market conditions are rarely ever perfect for buying a home. What's more important is to figure out whether you're ready for this kind of commitment, regardless of what's going on with home prices and mortgage rates. To determine that, here are some questions you should ask yourself.
A good reason to buy is to want a home to call your own because you're in the right place personally and financially. Without a doubt, homeownership might offer plenty of benefits, but a house is first and foremost a place to live in the long term, and you should treat it as such.
Note that mortgage pre-approval considers your gross income. Only you know how much you can afford to pay each month. You might have financial obligations such as helping your family members or paying vet bills for your pet that your lender doesn't take into consideration. You also need to keep in mind additional costs, such as property taxes, utilities and HOA fees. Factor these in to figure out your realistic homebuying budget.
"People should stay within budget and consider this as a major serious responsibility," Yun says. This might mean sacrificing vacations and travel and putting some sweat equity into a fixer-upper instead of buying a dream home.
You're also responsible for all of the maintenance the house will need. Stay ahead of the busted pipes and broken furnaces in your future by creating (and contributing to) a separate savings fund for these expenses. And when you do need to pay for some home repairs or improvements, consider using one of the cards CNBC Select has listed as the best for home improvements such as the Citi Double Cash Card or the Chase Freedom Unlimited. That way you make the most of the money you have to spend on keeping your house a livable home.
It can be tricky to navigate the current housing market. But whatever is happening in the real estate space, buying a home should be a decision based on your financial situation. A house isn't the kind of purchase you want to have buyer's remorse over. Evaluate whether you're buying for the right reasons and determine if you and your budget are ready for this important milestone.
Financial health is another way of stating what one's financial condition is and involves savings, expenses, and ongoing income through employment. It also involves a person's credit score, which determines the ability to qualify for loans such as those for homes or new vehicles and the terms of the loans. Financial health reflects the ability to live within one's means, save money and be able to afford all monthly obligations like loan payments and everyday expenses.
A common rule of thumb used by lenders in determining mortgage affordability is for the estimated mortgage payment to be no more than 28% of a borrower's monthly gross income. Mortgage lenders take into account things like annual income, total monthly debts, down payment, debt-to-income ratio along with loan factors like the interest rate, term, estimated taxes, and insurance when calculating how much they will lend to a given borrower.
Buying a house can take as little as a few days if you're buying in cash, or can take years if you're counting the amount of time it takes you to save money for a down payment and decide where to live. In a competitive housing market, you may put in multiple offers on homes before one is accepted. Conversely, mounting worry over a housing recession could lead more sellers to pull their homes from the market, making it more difficult to find a suitable property. If you already have your money saved and have a good idea of the neighborhoods and type of home you want, the process will probably take you two to six months. Ask a local real estate agent for a more accurate timeline based on your local market conditions.
Don't necessarily abandon your homebuying plans if the interest rate creeps up by a few quarters of a percentage. While it's nice to get the lowest interest rate you can, there are still great opportunities available to those with good credit and a good down payment. What's more, if some buyers drop out of the process due to rising interest rates, and the housing market cools down, you could get a better price on a home."}},"@type": "Question","name": "When is the best time to buy a house?","acceptedAnswer": "@type": "Answer","text": "It depends what matters most to you. The best time to buy a house for the most choices is the summer. The best time price-wise is winter, and the best days are December 26 and Mondays during the winter.","@type": "Question","name": "Should I buy a house by the time I'm 30?","acceptedAnswer": "@type": "Answer","text": "There is no "best age" to buy a home. The median age to buy a home is 32, but there are many factors that go into being ready to buy a home, including your income, how long you plan on being in one place, whether you can be approved for a good loan, and whether you're ready for the responsibility and expense of taking care of a home."]}]}] .cls-1fill:#999.cls-6fill:#6d6e71 Skip to contentThe BalanceSearchSearchPlease fill out this field.SearchSearchPlease fill out this field.BudgetingBudgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps View All InvestingInvesting Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps View All MortgagesMortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates View All EconomicsEconomics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy View All BankingBanking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates View All Small BusinessSmall Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success View All Career PlanningCareer Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes View All MoreMore Credit Cards Insurance Taxes Credit Reports & Scores Loans Personal Stories About UsAbout Us The Balance Financial Review Board Diversity & Inclusion Pledge View All Follow Us
Budgeting Budgeting Calculator Financial Planning Managing Your Debt Best Budgeting Apps Investing Find an Advisor Stocks Retirement Planning Cryptocurrency Best Online Stock Brokers Best Investment Apps Mortgages Homeowner Guide First-Time Homebuyers Home Financing Managing Your Loan Mortgage Refinancing Using Your Home Equity Today's Mortgage Rates Economics US Economy Economic Terms Unemployment Fiscal Policy Monetary Policy Banking Banking Basics Compound Interest Calculator Best Savings Account Interest Rates Best CD Rates Best Banks for Checking Accounts Best Personal Loans Best Auto Loan Rates Small Business Entrepreneurship Business Banking Business Financing Business Taxes Business Tools Becoming an Owner Operations & Success Career Planning Finding a Job Getting a Raise Work Benefits Top Jobs Cover Letters Resumes More Credit Cards Insurance Taxes Credit Reports & Scores Loans Financial Terms Dictionary About Us The Balance Financial Review Board Diversity & Inclusion Pledge Mortgages & Home Loans 5 Reasons Not to Buy a House and 5 Reasons You ShouldByMiriam CaldwellMiriam CaldwellMiriam Caldwell has been writing about budgeting and personal finance basics since 2005. She teaches writing as an online instructor with Brigham Young University-Idaho, and is also a teacher for public school students in Cary, North Carolina.learn about our editorial policiesUpdated on May 10, 2022Reviewed byDoretha Clemon Photo: The Balance / Emilie Dunphy 041b061a72