3 Things to Know Before You Buy a Home
Article courtesy zillow.com.
These important housing market factors could inform how and when you buy.
If you’ve been eyeing the housing market for any length of time as a prospective buyer, you may be wondering whether now is a good time to buy. There’s no single answer to that question since so much depends on your personal circumstances, but there are a few things to consider. Here are three of them:
Interest rates are near all-time lows
Mortgage interest rates are at historic lows right now*. For about a year, interest rates on 30-year, fixed-rate mortgages have hovered around 3% — and have even dipped below that at times.
Rates were much closer to 5% as recently as late-2018, and they consistently hovered between 7% and 8% for much of the 1990s.
Low-interest rates can boost your buying power and make a home more affordable. For example, let’s say you’re planning to buy a $300,000 home. If you put down 20%, or $60,000, toward the purchase, your mortgage would be $240,000.
The monthly payment on that amount for a 30-year mortgage with a fixed interest rate would be $1,012 if the interest rate was 3%, and $1,078 a month if the rate was 3.5% — a difference of $66 a month. (You also would have to pay taxes and insurance, which vary depending on locale.)
The dollar difference amounts to about a 6.5% increase in the payment, which may not add much to a smaller loan. But the difference can add up quickly for large mortgages and those requiring private mortgage insurance.
Rates also can affect affordability if interest rates and home prices rise simultaneously.
Growth in home values
Zillow economists predict that U.S. home values are likely to grow about at least 10% this year, and very likely by more.
That means a typical home is likely to cost you more in December than it would have in January. If you expect your income to grow during that period, that extra cash could offset some of the cost of buying a home.
Experts typically recommend spending no more than 30% of your income on housing, so you might want to keep an eye on how price increases might affect what you can afford and whether it makes sense to buy now or wait.
Local market conditions vary widely, so you may find that homes in your search area remain affordable despite the increases.
Pros and cons depend on the season
If you’re looking for the largest selection of homes, spring could be the best time to shop since that’s when more sellers list their homes for sale. But spring also is when buyers usually turn out in force, so you’re likely to have more competition, which can lead to bidding wars and paying over asking price in super-hot markets.
Fall could mean fewer homes to choose from, but also fewer buyers to contend with.
Keep both spring and fall in mind when trying to strike a balance between selection and competition.
There are, of course, other factors to take into consideration, including how long you plan to stay in your home. Timing the market is difficult even for expert investors, so it’s important to remember that the best time to buy is when it works best for you.
If you’ve decided to buy, we can help you get started.
And if you’re looking for more information on how to prepare to buy, we’ve got you covered.
*“Mortgage rates near all-time lows” is based upon the Freddie Mac Primary Mortgage Market Survey, which analyzes residential mortgage rate averages offered since 1971.