Should I buy a house now or wait?

Buy now or wait? That’s the question prospective homeowners struggle to answer in today’s hot housing market. Many potential buyers have leaned toward the “wait” side of this equation. In fact, about 75% of consumers think now is a bad time to buy a home, according to Fannie Mae’s Home Purchase Sentiment Index, a monthly survey that gauges consumer sentiment about the housing market.

There is no doubt that this is currently a seller’s market. But buying now can still be a wise long-term decision. Deciding which option is best for you depends on finances. Here are some key considerations to help you choose the best approach.

Should I buy a house now?

If you buy now, you can start building capital immediately. This is true regardless of the trend in the real estate market at the time. A key point for today’s market, however, is that buying now means avoiding further mortgage rate hikes later.

“If a buyer finds a property they’d like to live in, they shouldn’t delay,” says Stacey Froelich, broker at Compass in New York. “You can’t time the market, and a house has to be a long-term investment. A year from now, even if prices drop slightly, mortgage rates will likely be much higher. Ultimately, it will cost a buyer more per month if they finance.

Rising rates can mean serious problems for your monthly budget. Consider this calculation from Heather Brown, agent at RE/MAX Austin Skyline in Texas. “Based on a loan amount of $450,000, the difference between a 4% rate and a 5% rate is about a 13% higher payment,” she says. “Not only that, but the amount of interest paid over the life of the loan is also higher, so the payoff is actually higher.”

In general, if you can answer yes to these three questions, it’s time to buy.

1. Do you have excellent credit?

Whenever you borrow money, start by reviewing your credit report and credit score. The best mortgage deals will be available to those with credit scores of 740 and above. If you have demonstrated that you are a low-risk borrower with a history of on-time payments, you will be in line for the lowest mortgage rates offered by a lender.

2. Have you saved enough for a down payment?

Besides paying your bills on time, have you also managed to save a good amount of money? If you’re sitting on a big chunk of cash that can make a big dent in your down payment, now’s a good time to buy. Make sure you have enough left over though. Lenders feel more comfortable lending you money if you have extra cash reserves that provide a cushion if something unexpected happens.

3. Do you plan to stay in the house for a while?

In addition to the purchase price, buying a house comes with closing costs that can represent between 2 and 6% of the price of the property. So to justify the transaction costs, it’s wise to be reasonably certain that you won’t be moving anytime soon or that you’ll be financially stable enough to keep the property and rent it out.

Should I wait for prices to drop to buy a house?

If you want to become a homeowner but wait for prices to cool down, here’s the challenge: house prices don’t tend to fall (with the notable exception of the 2008 housing bubble). However, the good news is that house prices also cannot skyrocket forever. Here are two cases in which it might make more sense to wait until the end of the market:

1. If inventory in your area is up

If there is no shortage of homes for sale in the market you are looking for, waiting can save you money. “Prices are likely to stabilize or decline slightly now that interest rates are rising,” Froelich says.

But waiting can be a lost game in places where accommodation is severely limited. “However, that’s only if stocks go up,” Froelich continues. “Inventories are at rock bottom, and without an increase in supply, it’s hard to see how prices will go down.”

Brown agrees: “We just don’t have enough houses. Buyers with tight budgets who wait will eventually be shut out of the Austin market.

2. If your personal finances are less than stellar

The main reason to wait is if your current financial situation is not ideal. For example, if you’re expecting a large commission check, inheritance, or other windfall that would make a big difference to your down payment, it makes sense to wait for it to arrive. And if your credit score needs some love, waiting is also smart. Take the time to pay off your credit cards and improve your credit so you qualify for better loan terms.

Take a close look at your local market

Deciding whether you should buy a home now or wait ultimately comes down to where you want to call home. Regardless of national headlines, real estate is hyper-localized and can vary widely from market to market.

Consider this data from Redfin: In Naperville, Illinois, a suburb of Chicago, the median sale price of a home has increased by a relatively modest 8.2% over the past year, and the typical home stays on the market for 42 days. But in Lakewood, Colorado, a suburb of Denver, home prices have risen 29.1% over the past year, and the typical home stays on the market for just four days.

Work with an expert agent

In today’s market, it’s more important than ever to find a real estate agent who can help you navigate the process. “The right broker will be aware of inventory that might come to market or a particular situation with a seller or building,” says Rachel Glazer, broker at Compass in New York.

At the end of the line

Trying to buy a home in a seller’s market can feel overwhelming, but waiting too long can also present challenges. Review your finances in detail and take the pulse of the city you hope to live in. Then, talk to an experienced local real estate agent to determine whether you should buy now or wait until the market is a little more favorable to your bank account.

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