When to Buy a House
Point of Interest: Best Time to Buy a House
Buying a home is one of the biggest decisions you’ll make in your lifetime, so it’s not one to make lightly. Only you can decide when the time is right for you. Nonetheless, maintaining a high credit score, securing a comfortable down payment, committing to an area and buying at the right time of the year are all things you should consider when making your purchase.
There is much about buying a home that consumers don’t understand. First-time homebuyers often feel like they’re navigating a minefield when they finally step into the real estate market and may find themselves asking, “Is now a good time to buy a house?”
Ultimately, only you can answer the question as to whether it’s the right time to buy a home, but there are factors within and outside your control that you need to consider before you commit.
When to buy a house
The first thing you need to consider is your financial situation. Even if you don’t have a significant amount of cash on hand, you could still qualify for a mortgage to purchase a property, but it’s important to keep in mind that obtaining a mortgage means taking on debt.
You may want to pay off some of your existing debt before committing to mortgage payments if your debt-to-income ratio is already high. Otherwise, you might end up with monthly costs you can’t afford.
You also need to pay attention to your credit score. You could still qualify for a mortgage if your credit score is relatively low, but a low score will also affect the interest rate on your mortgage. You could end up paying a substantial amount in interest for your monthly mortgage payments, which means higher costs and a slower pace of building equity in your home. It may be in your best interest to raise your credit score before applying for a mortgage.
If you have a down payment that you’re comfortable with, and if after doing the calculations you feel confident you can afford your monthly costs, you may be ready to buy a home. You also need to consider the housing market.
Is now a good time to buy a house?
Buying a home is a deeply personal decision, but there are factors you can’t control that will affect your purchase. The time of year in which you choose to buy can have an impact on the price of your home, as can your lifestyle and the area you want to live in. Altogether, there are three areas to consider: seasonal timing, market timing and lifestyle timing.
As with any industry, the real estate industry operates in cycles. Certain times of year are busier than others, and prices tend to adjust based on activity in the market. This seasonal activity is driven mostly by human factors and the needs of homeowners and their families.
“Seasonal timing affects more than half of my clients, and most often their timing is tied to schooling,” John Donlon, co-founder of GoldCoast Mortgage, said. “If the family has children, they’ll want to be in place by the start of the school year, and they’ll need a purchase and sale agreement to enroll the children in the school district. It can take as long as sixty days to finalize everything if you start the process in the spring or in mid-June, so I advise them to be prepared as early as March. I would rather see people act proactively and be deliberately in the buying process. If they wait, it becomes rushed and reactive.”
Incidentally, the school season has an impact on the sellers’ market as well. One of the best times to sell a home is during the spring market because buyers are eager to get settled before school starts. You could get more competitive offers on your home.
Of course, this makes the run-up to the start of the school year a more expensive time to buy.
“June 30th is the biggest closing day of the year,” Donlon said.
Homebuyers who don’t have children don’t have to worry about this issue. Donlon suggested this type of homeowner should buy during the winter or during “the holiday market,” if possible. If you fall into this category, you could get a better deal on a home during the holidays than you could if you wait to buy in the spring market.
Market timing is not to be confused with “timing the market.”
“Trying to time the market is more or less impossible — it’s speculation. We are always in a real estate cycle and no one knows what next month will look like,” Donlon said.
If housing prices are high, you could hypothetically wait until the market shifts and buy a house when prices are low, but interest rates also affect the cost of owning a home. Contrary to what many people believe, mortgage interest rates are dictated much more by the market than they are by the Federal Reserve.
There is almost “no human control” in the market, Donlon said. “If you’re committed to the area and the other factors line up for you — go for it. Time heals almost all wounds in real estate. Your property will appreciate substantially over the next three decades.”
It’s only a good time to buy a home when you can afford it. Conventional wisdom suggests homebuyers should save until they have at least 20% of the cost of a home as a down payment before buying.
This is still a good idea, as it will likely help you avoid costly mortgage insurance, but according to a study by the National Association of Realtors in 2017, the 20% down payment isn’t as binding as it once was. More than 70% of non-cash, first-time homebuyers — and 54% of all homebuyers — made down payments of less than 20% over the five years leading up to the study.
Monthly payments and maintenance costs are also important considerations. If you’re a renter, your landlord is responsible for all necessary repairs to the rental property. As a homeowner, you’ll be responsible for those costs. If the added costs of maintenance, monthly mortgage payments, insurance and property taxes are too much for you to bear, it may be better to wait until your financial situation changes.
Donlon also advises clients not to buy until they’ve fallen in love with an area and feel secure in their income.
“Is your employment permanent in the area? Owning a home is like dropping an anchor,” he says, “so you should only buy when you feel grounded,” he said.
Reasons to buy a home
Aside from good timing, there are several other good reasons to buy a home.
First and foremost, when buying a home, you achieve a certain sense of permanence that you don’t get as a rental tenant. Buying a home means putting roots down in an area. It also gives you the opportunity to live in the space you’ve always wanted.
“When you own a property, you can customize it,” Donlon said. “Owning just gives you more freedom.”
Owning a home is also an important step for many young families because it ensures their children have a secure place to live while they grow up.
From a financial perspective, there are multiple advantages to owning a home. You can build equity in your home over time. If you’re tired of handing money over to a landlord with little return, and if you can afford the costs of homeownership, you may be ready to buy.
There may also be tax benefits to buying a home through mortgage interest deductions and property tax deductions. Nonetheless, Donlon suggests these deductions aren’t always as valuable as homebuyers might think.
“Deductions aren’t as loud as they were in previous years,” Donlon said. “In some cases, mortgage interest deductions may not be as valuable as the standard deduction.”
When the timing isn’t right
Just as there are good times to buy a home based on the season, the market and your own financial situation, there are also bad times to buy a home. Aside from market and financial factors, your lifestyle and the state of your employment are perhaps your most important considerations.
“One of the biggest mistakes people make when buying a home is doing so when they aren’t committed to the area,” Donlon said. “The market isn’t concerned with your departure schedule. If you’ve only been in your new home for a short time and you suddenly get your dream job in another city, buying and then immediately reselling your home has an extreme cost to it. Your down payment could evaporate, and you could be giving up five to ten percent or more of your home’s value in listing sales commission and other administrative costs, including sales and tax stamps in states that charge them as well as community preservation, land and historical fees.”