Should I Buy a House Right Now?

New market reports and headlines come out every day about the economy. You may wonder, “should I buy a house right now?”

That depends on your personal situation, i.e your finances, location, and five-year plan, for example.

In this article, we’ll talk about common scenarios when you should (and shouldn’t) buy a house and different ways to decide if you’re ready.

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The pros and cons of buying a house

A pro and con list is a classic way to make a big decision. Most people can probably think of a whole list of pros for buying a house. But since it’s such a big decision, be aware of the potential cons too.

Consider some of these pros of buying a house:

Buying a home is an investment in your own financial future because it helps you build equity.
Property taxes and mortgage interest may be tax-deductible.
Unlike renting, you can alter a home however you wish.
Potentially get more “bang for your buck” with more space than typical apartments
Monthly mortgage payments often end up costing less than rent in an apartment or condo

As for the cons, there are a handful to keep in mind:

Taxes and home insurance are added expenses
You’ll be responsible for your own maintenance and appliance replacements
Buying a home is a long-term investment, so if you’re someone who isn’t ready to settle down anywhere, perhaps reconsider.
Closing costs and a down payment can easily exceed $10,000.

This may not be all you need to make a decision, but it’s a step in the right direction.

When you should buy a house

Let’s look at the best scenarios when homebuying is beneficial.

1. You’re ready to stop renting

Sometimes living in an apartment or with roommates just gets old. You want your own space, privacy, and freedom. Many people also decide to buy a house once they realize how much money they’re “wasting” on rent. With a mortgage payment, you’re growing your equity with each payment, in an asset that may appreciate over time.

2. You have your finances in order

It’s much more enjoyable (and easier) to purchase a home when you’re not at the edge of your budget. When your finances are in order, it means you have a secure job, with a steady income, and a fully-funded emergency account.

Buying a home is a big decision. Yes, you can always sell it if necessary, but that’s easier said than done. Not only do you have to find a buyer, but you could also lose money along the way. The whole process will be better if you’re not scrambling or scraping up money to get to the next step.

3. You’re interested in a long-term investment

Make this decision once you’re on board with the idea of making a long-term investment. The best way to build equity and make money when you sell is to remain in your home for an extended period of time—think five years or more. You may lose money or hurt your credit if you sell your home shortly after buying it.

When you shouldn’t buy a house

There are often times of volatility in the market, as well as in your own financial situation. If one of these scenarios sounds like yours, you might want to think about your options.

1. You don’t have a down payment

A down payment is critical to buying a home.

It’ll affect the loan you can qualify for and the type of home you can afford. Depending on your loan type, a minimum of 20 percent is preferred. This does three things for you:

Lowers your monthly payment
Provides immediate equity in your investment
Allows you to avoid paying private mortgage insurance (PMI)

While you don’t always need to put 20 percent down, you should still consider whether you have enough savings for any amount of a down payment.

That’s not even considering closing costs or other fees associated with a home purchase.

2. You have a high debt-to-income ratio

This is something that lenders pay close attention to when reviewing your mortgage application. This number is calculated by dividing your monthly debt payments by your gross income.

Most lenders look for a debt ratio of 43 percent or less. If your ratio is higher, consider the changes you can make to move this number in the right direction. That usually means consolidating and paying off debt or increasing your income.

3. Your credit needs work

Credit requirements will typically vary by lender, as well as the type of loan you apply for. Generally, it’s better to have a score in the “good” to “exceptional” range. If there are outstanding debts affecting your credit, it’s best to pay those off before applying for a mortgage.

Each of the three major credit bureaus, Equifax, Experian, and Transunion allow customers one free credit report per year. Take a look at yours and dispute anything that’s wrong or a mistake. Once you’ve taken care of that, you’ll be in better shape to qualify for a mortgage loan.

What else to consider before a home purchase

Let’s look at more things to consider to help you decide if you’re positioned to buy a house right now.

Savings

It’s recommended to have a cushion of savings before you apply for a loan. Consider everything you’ll need, including a down-payment, closing costs, other fees, furniture costs, taxes, insurance, utilities, and the first month’s payment.

In addition, do you have money in the bank for an emergency? Can you afford to put some money away from each paycheck or are you at the top of your budget each month? Patience can be hard when you want to get into a house, but the peace of mind that your savings will provide will be worth the wait.

Location

Don’t “buy just to buy.” Buy the home that’s best for you, in an area you can afford. This starts with comparing multiple options in your desired location. If the city you had your sights on is out of your price range, perhaps consider a suburb just outside of it. Or, if nothing is available, it might be best to wait until more homes go on the market.

Homebuyers with families, or who are looking to start one, will want to look at the school system in the area. Are parks, recreation, shopping, or other local activities important to you? The bottom line is to consider your needs before settling on a neighborhood.

Wants vs. needs

It’s easy to get carried away when you’re house hunting. Your agent could show you a home with all the amenities but that’s at the top of your budget. Decide what you can and can’t live without before you begin your search, so that you don’t compromise your budget on things you don’t necessarily need.

It could be nice to have a pool but maybe that house doesn’t have room for the home office you need and costs twice as much as one that does, without a pool. Save that money for the amenities you can’t live without.