Is Now The Time to Buy a Home?
During the last couple of years, there has been a great deal of interest in home buying. Following the financial crisis of 2008, the real estate market fell in many areas, and that means that home prices fell as well. On top of that, mortgage rates dropped. These factors combined to make home ownerships more affordable and attractive than it had been in years.
In fact, the idea of buying a home right now is still very attractive. There are still distressed homes on the market for those who have the time and ability to look for foreclosures and short sales, and mortgage rates are still near historic lows. Even if you don’t purchase a distressed home, there are still markets where home prices are still pretty low.
The temptation is to buy right now, while there are still good deals. With policymakers insisting that the economy is improving, the low home prices and low mortgage rates might not last that much longer, and that could mean you miss your chance.
But, as tempting as it is to buy a home right now, you need to take a step back and realize that it might not actually by the right time for you to purchase a home.
Don’t Buy Just to Buy
When you buy a home, you are making a long-term commitment. You are borrowing a huge amount of money, and selling can be difficult. If you don’t plan to stay in one place for a long period of time, tying yourself to a home can be a poor decision if you don’t have a contingency plan. Unless you plan to rent it out later, buying now might not be a good idea.
Before you buy, understand your motivations. Buying a house just because it’s considered a financial life milestone is not a good reason to buy right now — even if you can get a good deal. It’s important to understand where you are at with your life and your money, and to know what you want to do with the home.
Are You Financially Prepared?
Another consideration is whether or not you are truly financially prepared to buy a home. Prior to the financial crisis, many lenders were willing to let homebuyers borrow large sums, even though they couldn’t technically afford the loans. While things settled down for a little while, some of those practices are creeping back. Just because a lender tells you that you qualify for a certain amount doesn’t mean that you should actually borrow that money.
Before you buy a home, you need to take stock of your finances. Consider the following issues:
- Amount of consumer debt you have: If you have a lot of consumer debt, adding a mortgage payment could strain your finances. It’s better to have most of your consumer debt paid down before you commit to such a huge loan.
- Job security: While there is no way to know for sure if your job is stable, you should at least have a reasonable expectation of long-term employment. If you are in a temporary job, or if you think that the company might lay off employees soon, buying a home might not be the best plan.
- Your credit situation: If you have good credit, you will qualify for the best mortgage rates, and pay less overall for your mortgage. If you have poor credit, you will pay a higher interest rate, and your loan will be more expensive. You might actually be better off in the long run if you wait until your credit improves.
- Down payment possibilities: Do you have the ability to make a substantial down payment? In some areas, the $0 down mortgage is making a comeback, but that’s rarely a good idea. A down payment indicates that you have planned ahead, and that you are planning your finances around your long-term goals. If you aren’t to the point where you can make that happen, you could find yourself in financial trouble if you commit to a home and you aren’t used to managing your finances for the long term.
In the end, the right time to buy a home depends on your individual circumstances more than it does the current market. If you aren’t financially comfortable, it’s the wrong time to buy a home, no matter how good the deal is.
Miranda Marquit is a freelance journalist specializing in topics related to personal finance, investing, and entrepreneurship. She writes regularly for a number of web sites, including AllBusiness, Huffington Post, and Wise Bread. Miranda’s work has been published at U.S. News & World Report, MSN Money, Fox Business, and Business Insider. Her work has been linked to from USA Today, the Washington Post, and the Wall Street Journal, and she has appeared on NPR Morning Edition and American Public Media’s Marketplace