The Best Time to Buy a House
- One major acquisition most people make is a home.
- However, with the current economy, it can be challenging to determine the best time to buy a house.
- Below is a list of information regarding why or why not now is the best time to purchase a home.
One of the biggest purchases a person can make is buying a home. Buying a new home is typically an excellent long-term investment; once the mortgage is paid off, you are left with a high-value asset under your name.
Although buying a home has its benefits, it can be challenging to determine the ideal time for purchasing a home. Below is a list of information that will cover why not is and is not the best time to buy a home and other factors that affect your chances of buying a home.
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Pros of Purchasing a Home Now
Higher Interest Rates
The pandemic caused many to be out of work, and the chances of an economic crash were high. So, the federal government implemented a short-term fix by integrating COVID-19 relief programs to help fight back against lost jobs. As time passed, this cash injection caused the cost of living to rise, and the inflation rate reached its highest point since 1990.
Thus, the Federal Reserve decided to raise interest rates to help reduce the bidding war that is going on in the home buying process and the number of homes purchased. The purpose of the higher interest rates was to reduce the number of people entering the real estate market in hopes of purchasing a home. Their plan seems to be working, as a lowered demand in home buyers has caused home prices to decline incrementally.
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As a result, now is not a bad time to contact a real estate agent and commence searching for a home if your financial situation allows it. Although one short-term disadvantage is the increased interest rates will cause higher mortgage monthly payments, the long-term benefits of owning a home in the future outweigh the short-term drawbacks; as famous investor Ken Fisher said, “Time in the market is better than timing the market.”
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Increase in Number of Homes for Sale
At the beginning of the pandemic, many non-essential businesses were forced to stop operating, so the government could control and restrict people's exposure to the COVID-19 virus. At the beginning of the pandemic, one factor which caused the housing market to experience a sudden price increase was due to the fixed supply, as construction companies could not build more homes.
However, the majority of COVID-19 restrictions have been removed, and the economy has resumed its day-to-day activities for the most part. Therefore, with more companies returning to work, the supply of houses for sale on the market has increased as more homes are being built by construction companies. With an increase in the supply of homes available for sale, the price has begun slowly decreasing, making it a potentially good time to buy.
Cons of Purchasing a Home Now
Fixed Short-Term Supply of Houses
As mentioned earlier, the pandemic brought the U.S. economy to a halt, including the construction companies that were building homes during the Spring and Summer. So naturally, the lack of new houses raised prices, but now that the construction industry is resuming to build homes, it has caused the cost to lower marginally.
Though home prices have begun to lower, they can potentially still lower in value as more houses are being built across the country. Of course, houses are not built overnight, so there won’t be an immediate shift in home prices. But, there is a possibility that house prices could begin gradually regressing once more and more houses flood the market.
Therefore, one potential course of action is to refrain from buying a house for now, until the average market price has lowered more.
Maximize Your Chances of Buying a Home
Buying a home is no easy feat, and it requires key steps to be taken by the person who is in search of a home. Below are two key actions one can take to improve their chances of buying a home.
Save Your Money
To receive a loan from a financial institution to purchase a home, there needs to be a down payment made by the applicant before they can get approved for the mortgage. According to Rocket Mortgage, the average down payment for a mortgage is around 6%, and the more a person puts aside for their down payment, the higher their mortgage amount most likely be.
Therefore, regardless of whether you want to purchase a home in this current housing market or wait until it cools down a little bit more, the more money you put aside for a down payment, the larger your mortgage will be, meaning you are able to afford more expensive properties.
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Have a Good Credit Score
The credit score and credit history are two of the most common indicators financial institutions used to determine whether a person is reliable enough to receive a loan. Therefore, the higher your credit score, the lower your borrowing rate, meaning you save a large sum of money over time. Here are two main tips that could help you increase your credit score.
Do Not Max Out Credit Limit
One false ideology some people have with credit cards is they believe they should max out their credit cards. When a person maxes out their credit limit, the credit card issuer believes that this person is an irresponsible spender, and thus, results in a lower credit score.
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Therefore, spend up to 30% of the credit limit when using your credit card to build credit. However, keep your credit utilization below 30% because it can increase your attractiveness to lenders. You are also more likely to access better rates and larger loans with low credit utilization.
For example, if the credit limit of your credit card is $1,000, the max you should buy with it before paying off the outstanding balance is $300 in this scenario. When you use your credit card in moderation, your credit score increases, and you become viewed as a trustworthy person for a loan.
Keep Track of All Transactions
The key to financial success is being smart with your money. One common mistake many people make is they overspend with their credit card, and have trouble paying it back, which causes their credit score to fall and negatively impacts their chances of getting a home. Therefore, whenever there is a transaction, keep the receipts and make a spreadsheet of all the expenses you had in a month.
This strategy helps keep your spending habits in check and helps you determine whether you are excessively spending money on unnecessary items.
The Money Wrap-Up
Ultimately, the best time to buy a house depends on when you believe you are financially stable to begin home hunting. There is no perfect time of year to purchase a home; and whether you begin searching for a house now or wait longer until the prices have dropped a bit more, it is important to keep the factors discussed mentioned above in mind, as they somewhat make a difference to your house hunting experience.
Disclaimer: The details mentioned above regarding when to buy a house should NOT be considered financial advice. CapWay is not liable for any losses incurred by reading the information above.
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