Buying a house is a dream for a lot of people, but like getting married or having kids, it’s a big life decision. Many people may plan for buying a home for years, but how do you know when you’re finally ready? When does it make sense to buy a house?
Here are 14 signs that it’s time for you.
You have decent to good (to awesome) credit
The better your credit score, the better deal you’ll get on your mortgage loan and the easier it’ll be to get approved. Lenders view a good to great credit score as a sign that you’re likely to repay your debts. They’ll give you a better rate because they’re less worried about default.
To get ready to buy a house, work on improving your credit score. If you’ve already got a good score, you probably have the financial management skills to handle owning a home.
You have a healthy savings account …
A down payment represents a lot of money in every market. In some markets, it’s prohibitive to reach 20%, which is why many programs exist that help you get in a home for much less than 20% down. If you’ve saved up 5% of the average home price where you live, it’s a sign you might be ready to buy.
However, don’t forget that the bigger your down payment, the more you’ll save over the lifetime of your mortgage loan. Putting down $5,000 or $10,000 more could get you into a bigger house. Take a quick look at the market and, if you don’t like what you see in your price range, think about waiting and continuing to save.
… Like, really robustly healthy
You’ll have to put more money into your house than the down payment. Don’t forget about closing costs, maintenance, and emergency funds!
Closing costs such as legal fees, lender fees, or taxes, can be up to 5% of the total loan. During the home inspection, you might have found a few home maintenance items you’ll need to take care of sooner rather than later. And you should always have some emergency funds set aside for when the hot water heater breaks on Christmas Eve.
If your savings accounts will have tumbleweeds blowing through it after you’ve paid the down payment, wait a few months or a year until you have a bigger cushion.
You’ve been paying down your debts
Paying down debt doesn’t just improve your credit score; it also frees up cash to cover a mortgage payment and home maintenance. If you’ve been working on reducing your credit card or student loan balances, it might be time to buy.
Do you have to pay off everything to buy a house? No! Lenders don’t expect you to be completely debt-free when you apply for a mortgage, so if you’re still paying off a student loan or car, it won’t disqualify you from borrowing. But in many cases, the lower your debt load, the better the loan terms you’ll get or the more house you’ll qualify to buy.
You know you want to live in the metro (or neighborhood) for several years or longer
If you’re going to move within two or three years, it may not make sense to buy. In Austin’s area, “people come for corporate jobs, and may move in two years.” If you’re not planning on staying in an area for three to five years, you might not break even on your home sale. Worse, you could lose money, bringing money to the table so you can sell.
And don’t forget about capital gains taxes if you make a profit when you sell! The rate of capital gains taxes will vary based on how long you have owned the home. If you sell after only owning the home for less than two years, you could end up paying more in taxes than if you held on to it longer.
It’s difficult to say how much more you’d pay for the short term gains — it depends on whether you’re married or single, and your income bracket before the sale — but it adds up to between a 3% to 20% difference in terms of what you’ll pay in taxes versus the rates for longer-term profit.
Capital gains — so the gain on your sale of the loss — aren’t taxed at the same rate as ordinary income. If you made more than $250,000 for a single person or $500,000 for a married couple filing jointly, you’d have to pay taxes on the excess profit.
You have decent job and career stability
If you’re worried about losing your job next month, it’s not time to buy a house. Part of planning to stay put for a few years is knowing that you have job or career stability.
It’s important to look at both your current position and your overall career trajectory in the metro area where you’re thinking of buying. Even if you have a great job now, if your industry isn’t strong in that city, or there aren’t many jobs available, continued advancement in your career may require that you relocate at some point, and that’s something you’ll have to consider before signing up for a 30-year mortgage.
You’re ready to take on more responsibility
Owning a home means not just paying a mortgage, insurance, and taxes — you’ll also need to be aware of maintenance and take care of a big investment! Are you ready for the responsibility of arranging for lawn mowing when you go on vacation? Prepared to cancel plans if your dishwasher overflows?
Owning a home is a large responsibility. If you prefer a more carefree lifestyle right now, don’t tie yourself down.
Your local market is looking buyer-friendly
While macroeconomic factors like unemployment rates and mortgage rates impact the housing market, local markets can vary significantly from overall conditions. If years of a hot housing market has priced you out of buying in your city, but lately it’s been cooling, now’s your chance!
To get a feel for local conditions, talk to an experienced agent in your area. Whenever possible, you want to enter the housing market when factors are working in your favor.
Mortgage rates are low
They’ve been historically low for a pretty long time, but it’s always nice to take advantage of saving money when you can! Not only would one or two points off your mortgage loan rate save you a lot of money in the long run, but rates can also impact affordability.
According to Austin, low rates mean that, “what someone can afford now, they might not be able to afford in a year or two when interest rates go up.”
Your lifestyle supports it
Maybe you’re ready to settle down because you have a dog, you and your partner need more space when you’re both working from home, your kids want a backyard, or you’re just plain ready — whatever the reason, owning a house would be easier in many ways than renting for your lifestyle.
By contrast, if your relationship is on the rocks …maybe it’s not the best time to buy. It’s not as easy to move out of a house you own together as it is an apartment you’re renting jointly.
You don’t mind sacrificing some flexibility for stability
It’s a lot harder to sell a house than it is to break a lease, but the trade-off is really worth it for some people. When you buy a house, you can’t just pick up and move for a new job or relationship. Any major life change could take months to a year.
You’re also tying up a large chunk of change, which could mean missing out on other opportunities. For example, if a family member offers you the chance to invest in their successful business, you could have to pass. Or if you had your eye on a new car or camper … those plans might have to wait.
You want more privacy and control over your living space
After a few months sheltering in place in an apartment, homeownership might look pretty good to you right now! Sick and tired of listening to your neighbor’s music? Want more space or privacy? These are important factors in buying a house.
Homeownership requires more responsibility, but you’ll receive more privacy and control. One note of caution, though.
If you want to express yourself with your home — bright fuschia front door? — be careful about buying a house in a neighborhood with an HOA. The HOA’s rules could dictate paint colors, prevent you from planting large privacy shrubs to block your view of the neighbor’s yard, or place other restrictions around your homeownership.
If you’re thinking about buying to have more privacy and control over your home, avoid buying in a neighborhood with an HOA, or at least ensure the HOA’s rules are ones you can follow. (There can be real consequences to breaking them!)
The timing isn’t too disruptive
Kids in school and it’s September? Maybe not time to buy a house now. Kids out of school in May and you have a chance to get them into a better school district? Great time to buy!
By contrast, if you aren’t hampered by lifestyle issues throughout the year, then you could time your home purchase to when you are likely to get a good deal. An agent can help you figure out when timing the market could yield better results.
You’re tired of paying rent, and it’s only getting more expensive
Owning a house comes with its own hassles, but renting has issues, too. If you’ve grown tired of unresponsive landlords, poorly-maintained units, or constant rent increases, it might be time to give your landlord your notice. Paying rent doesn’t usually build wealth for your future, but owning a home builds equity; some financial advisors consider it a sort of forced savings plan because you’ll get some of that money back whenever you sell..
In many markets, it’s cheaper to buy than to rent, even after factoring in property taxes, homeowners insurance, and maintenance. If rent prices are rising, a home could be a wiser investment.
Still on the fence about owning a white picket fence? Austin has one last piece of advice. “People waiting, whether it’s for the market, or to have 20% down, can wait themselves out of a good market situation.” If the signs point to ready, talk to an agent today.
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