At this point, we’re assuming you’ve weighed all the options and concluded that home ownership is right for you. Maybe you were spending too much on rent? Or you discovered that the condo route is limited. You outgrew the idea of living in a treehouse. It’s time to start shopping for a real home and you have no idea how to begin. That’s why you’re here, reading this. Hopefully we can help you out a bit.
Buying a house is one of the most important decisions you’ll make in your adult life. Income, situation, credit score, interest rate, and the availability of affordable homes all need to be taken into account. Simply put, the timing has to be right. Those who try to do this too soon, or wait too long, end up struggling financially. You don’t want to find yourself in that position.
Don’t rush into it. Buying a house shouldn’t be something you do just to keep up with your college classmates. For all you know, they could already be upside down on that American Colonial they bought. Avoid their nightmare scenario by doing your homework before embarking on a house shopping spree. Talk to your bank. Sign up for a real estate class. Acquire some knowledge.
Before You Begin Buying A House: A Home Buyer Pre-Check
There are certain steps you need to take prior to searching for a new home to buy. A trip to your local bank or credit union should be at the top of the list. Make sure that you qualify for a mortgage. Is your credit score high enough? Do you have sufficient funds in your savings account? Financial stability needs to be established prior to home ownership.
The next step is to do some research into market prices for homes in your area. Your visit to the bank should have given you some indication as to what you can afford. Are there homes for sale in your area that match those parameters? If not, are there other neighborhoods or towns you’re interested in? These answers will determine where to start home shopping.
How long do you plan to live in this home? Remember, you’ll be locked into a fixed monthly mortgage payment. “Rent Stability” is a term usually associated with rental properties, but homeowners benefit from it also. Your income and your monthly payment are intertwined. If you start making more money, you can afford more house. Plan accordingly.
The Best And Worst Months To Buy A House
Once you understand the why and how of buying a house, make sure you know when to buy. Historically, there are certain months of the year when you can consistently find better prices. January tops the list. No one buys a house in January and very few buyers are shopping during the holiday season. That means homes have been on the market for a while.
The longer a realtor or private seller has to hold a listing, the more likely he or she will negotiate the price with you. That’s what happens in January. The opposite is true in April, the worst month to buy a home. Inventory is typically high in spring and there are a lot of buyers emerging from their winter hibernation looking to close on a new house. Here’s more:
- The month of December is not a good month to buy a house, but the day after Christmas is. No one is house shopping on December 26th. Inventory may be low, but sellers are eager to move and will offer discounted pricing to the right buyer.
- If you live in a warmer climate, like Florida, seasonal trends may not apply. Pricing stays fairly consistent throughout the year because sellers aren’t concerned about winter slowdowns. Buyer activity doesn’t fluctuate that much either.
- The best day of the week to buy a house, regardless of month, is Monday. Buyers save up to 2.3% on Monday home purchases. The second-best day of the week for home buyers is Friday. Thursday is the worst. Buyers save less than 1% on Thursdays.
The best and worst month data is based on trends. For hard numbers, analyze the US Existing Home Inventory for the past five years. You’ll see that the number of homes on the market increases from January to July, then declines for the remainder of the year. Home buyers have fewer options in October or November than those who shop early in the year.
Price-Shopping For The Right House
After the financial crash of 2008, median home prices went down and it became a buyer’s market. Nearly everyone who bought during that period watched their home value increase up to 25% over the next decade. We’re now in a seller’s market, but that could change soon. Our declining economy is likely to drive down property values once again.
Real estate investors thrive during economic downturns. Financial analysts believe that the country is about to go into a recession. For those unfamiliar with the term, it means a slow-down in economic activity. Consumers stop spending. Investors and lenders limit activity. Properties, including homes, go up for sale as owners downsize or get foreclosed on.
Home prices fluctuate based on market conditions. When there’s limited availability, the price is high. If more homes go up for sale, prices come down. That’s simple supply and demand. Knowing that January is a good month to buy a home is good, but how many homes are on the market? Understanding economic drivers is critical if you want the lowest price.
Searching For The Best Interest Rate To Buy A House
History has shown us that list prices will always come down at some point, but what is the total amount of money you will eventually pay for your new home? Right now, interest rates are at an all-time low. With a good credit score of 760 or more, you can get a 30-year fixed mortgage for 3.301% APR. Your monthly payment for a $200,000 home would be a mere $876.
Based on that, it’s a great time to buy a house, right? Unfortunately, that may not be true. That $200,000 home could be overvalued right now. We’re in a seller’s market with low inventory. What happens when property values start to come down again? The value of your $200,000 house could drop to $170K or $180K. Now you can’t sell without taking a loss.
Interest rates are impactful, especially when you’re making monthly payments for fifteen to thirty years. That said, don’t fall into the trap of thinking you got a good deal because you scored a low interest rate. The list price of the home is just as important. If it doesn’t reflect the actual uninflated value of the property, don’t buy the house. Wait for prices to come down.
Be Prepared For Additional Costs
No one should attempt to buy a house without having cash in reserve for unexpected expenses. Home ownership means that you’re responsible if any unexpected repairs need to be made. Make sure, before you start home shopping, that you have extra money in the bank, a debt-to-income ratio with some wiggle-room after the mortgage payment, and a steady job.
Remember to ask about utilities and taxes when you speak to the seller. There are certain scenarios where you can include some of those expenses in your monthly mortgage payment. It’s also a good idea to speak with the old owners, if possible. Knowing the history of a house can help you budget accordingly for upcoming expenses, like a new roof or furnace.
Final Thoughts: Best Time To Buy A House
So you’re ready for homeownership, what an exciting time! It can definitely get pricey, though. Make sure you use this guide and learn when the best time to buy a house is so you can save.