Should I Wait to Buy a House?

I’ve heard people ask this question a lot lately because of the sharp rise in mortgage interest rates last year.  When we bought our first house almost 30 years ago, the rate was about the same as the current rates.  Here’s the thing to remember, the rates during the pandemic were at HISTORIC LOWS.  We had never seen anything like that in the past.  Sure, home prices were lower in the past too so that makes it even more of a difference now with home prices being high and mortgage rates being higher than the recent past.  However, the AVERAGE 30-year mortgage rate over the past 50 years is around 7.75%. 

Over time, house prices tend to trend upwards, so waiting until rates fall may be a mistake just like waiting for the stock market to fall before you invest might be a mistake.  Timing the market is nearly impossible unless you happen to be ready right when things take a dip.  You need to be in it for the long-haul.  Here are some things to consider to decide if you are ready to buy a house or not:

1.      Do you have enough saved for a 20% down-payment?  If you don’t, see if you qualify for a first-time homebuyer program in your area.  These may be sponsored by the state or federal government, non-profit organizations or your employer.  There may be very LOW down-payment options available to you. If you have less than 20% you may also need to figure PMI (Private Mortgage Insurance) into your monthly payment.  A lender can help you figure out how much you may need for a down payment. 

2.     Do you have enough saved for appliances or repairs that a home may need? Guidelines say you should estimate around 1% to 2% of the purchase price of your home for repairs, maintenance and upgrades each year.  This would be $5,000 to $10,000 for a $500,000 home.  The newer the home, the less you may need, however new construction homes still may need window coverings, landscaping and appliances.  You also may need a furniture budget if you are moving from an apartment to a home.

3.     Do you plan to stay in the home for at least 3 to 5 years? This is a hard question to answer for some people, but try to think ahead if you can.  Are you planning to expand your family to the point that you will quickly need more space?  Are you in a job or the military where moves are common every few years?  If this is the case, it’s good to know ahead of time if your employer covers relocation costs and realtor fees.  If not, you may want to continue renting or buy at the lower end of your price range in case you want to become a landlord and rent out the home when you move someplace else.  Otherwise, the cost of selling may eat into any appreciation you have in that amount of time.   

4.     Do you earn enough to comfortably cover the monthly payment for mortgage, property taxes, insurance and additional fees like HOA and PMI? Common guidelines say that your housing payments shouldn’t be more than 28% of your gross income and all of your debt payments shouldn’t be more than 36% of your gross income.  Using this guideline, if you earn $10,000 a month ($120,000 annually), your housing payments should be $2,800 or less and that leaves $800 for other debt payments.  This might look differently if you are planning to have a roommate or if you don’t have a lot of other expenses besides housing. You may also need to plan for a higher percentage in higher cost of living areas.

5.     Do you have high-interest credit card debt?  This is not a deal-breaker, but paying off your high-interest credit card debt before you buy a home will help make it easier to qualify for a mortgage.  It will also free up monthly cash to make your mortgage payments easier to handle.

6.     Are you ready for the responsibilities of home ownership?  Homes require regular maintenance and upkeep such as yardwork, HVAC maintenance, pest control, flushing the water heater and exterior painting.  Depending on the age of the home, you may also need to replace or upgrade major components while you live there such as the roof, plumbing, electrical, windows, water heater, furnace or air conditioner.  If you don’t want to deal with this kind of maintenance, be prepared to pay more for someone else to do it or consider continuing to rent from someone else. 

7.     Do you have an Emergency Fund to help with all of the unexpected expenses?  While having a down payment and enough to make your monthly payments is great, having an emergency fund on top of that will help keep you out of credit card debt if something happens.  If you happen to lose your job or have a car accident and need to replace a car, having at least 3 to 6 months’ worth of expenses in an account will help you continue to make your mortgage payments.

8.     Do you know where you want to live?  This is a big one.  There are so many factors to think about with this one.  You can do a lot of research online to find out things like schools, crime rates, nearby amenities.  Driving around the neighborhood at different times of day and back and forth to your job to see what the commute is like may be helpful to get a feel for the area. 

9.     ARE YOUR PREPARED TO COMPROMISE? We are in our seventh home and although we have had many years to figure out what we wanted, we still had to make compromises when we bought this house.  You may need to have a longer commute to afford the kind of house you want. Some people commute over an hour each way to work (we did!). You may need to get a little smaller or older house than you originally thought you wanted.  Even if you build a home, there will likely always be things that you compromise on or decide you want it to be different after it is done.  Understanding that it may take a lifetime to get a home as nice as the one you grew up in or the apartment you rented might make your home-buying journey less stressful.  As the Rolling Stones song goes, “You can’t always get what you want”! 

Thinking through each of these points will help you decide if you are ready for home ownership or not.  If you feel you are emotionally and financially ready, now is as good a time as any to reach out to lenders and realtors and get a head start on the process.  Don’t be afraid to ask lots of questions so that you understand how everything works.