Is now a good time to buy a house?
Updated: May 17
Buying a house in 2022 is a different beast than it was just a couple of years ago. Prices in many markets have gone through the roof, meaning you can get a whole lot more for your current home but will likely pay more for your new home.
You’ve also got to take interest rates into account. The Fed just raised interest rates by 0.5%, and that will have an impact on the amount you ultimately pay for your home. In this rapidly changing environment, you may be asking yourself, is now a good time to buy a house?
If you’re in the market for a new home or are thinking about making your first home purchase, these are very real considerations you should be taking into account. But don’t let them dash your dreams. By finding a good lender and realtor, you can find a solution to nearly any financial situation.
Is now a good time to buy a house for current homeowners?
If you've been considering a new home for your growing family or vinyl collection but are locked into a great rate at your current place, learning how to know when to buy a house can feel daunting.
In the current housing market, the demand still outpaces supply, so you’ll be able to get a good price for your current home. On the other hand, unless you already have a second home, you’ll have to purchase a new one, and you’ll likely pay inflated prices on that home.
If you get good money for your old home and secure a good rate, you may be able to land a bigger house for the same monthly payment you’re making now. In that regard, now may be a great time to buy a house. You’ve just got to find a great interest rate.
Things can get a little more complicated if this is your first home.
Is now a good time to buy a house for first time buyers?
If this is your first home purchase, you don’t have any equity built up in a current home, meaning the amount you earn, the amount you have saved, and your credit score will be key. They will be important factors in determining how much home you can afford, but also in the interest rates available to you. Let’s look at some important home buying tips for first time buyers.
Start your search early
If you wait until you are ready to purchase your first home to start evaluating lenders and rates, you’ve put yourself in a tough situation. By shopping around early, you’ll know what you need when the time comes to make the purchase, and you’ll be able to secure better rates than you will at the last minute.
How much can you afford for a down payment?
Lots of first time homebuyers think they need to put 20% down in order to qualify for a loan, but that’s not the whole story. Depending on what kind of loan you’re looking for, you can purchase a house with down payments much lower than that, or even no down payment, in some circumstances. Be realistic about how much you can put down, being sure to keep enough on hand to cover emergencies.
How much can you afford for monthly payments?
Once you’ve purchased your home, you’ll have to make monthly mortgage payments. Make sure you aren’t strapping yourself for cash by spending too much on your monthly payments. If you can’t afford much, you may want to be honest with yourself and ask, is now a good time to buy a house?
What is the credit score needed to buy a house?
Whenever we talk about buying a house, one thing that inevitably comes up is your credit score. You’ll need a good credit score to buy a house at a solid rate, and some loans have minimum score requirements for approval. Here are some of the standard loan types and what to expect with each.
If you’ve got good to excellent credit, a conventional mortgage is a great way to find competitive rates and flexible repayment periods. They do require a higher credit score than other types of loans, with many requirements falling at scores of 620 and up. But if you’ve got the score, the rates can’t be beat.
If you’ve got bad credit, there are still options available to you.
FHA loans are insured by the Federal Housing Administration, which makes them easier to qualify for since they present less risk to lenders. You can also finance a home with down payments as low as 3.5%. That fact makes this type of loan ideal for people with little savings and lower credit scores. If you are going to make a down payment of less than 10%, however, you’ll still likely need a credit score of at least 580.
If you’re a current or former member of the military, a VA loan is a great option available to you, as long as you meet the eligibility requirements. One great benefit of the VA loan is that you can finance up to 100% of the home’s purchase price, meaning a lack of down payment isn’t a barrier to homeownership. The VA has no minimum credit requirement, but their lenders usually have a minimum score requirement of somewhere in the range of 580-600.
How to raise credit score to buy a house
Since your credit score is such an important factor when it comes to your interest rate, you’ll want to make sure it’s as strong as possible before applying for a loan. Is now a good time to buy a house if your credit score is a little low? You can still get a good price and a low interest rate since there are some relatively quick ways to beef up your score before you sign.
If you want to raise your credit score to secure a better interest rate, learn the factors that affect your credit score, and take some simple steps in the short term to bring your numbers up. So, what affects your credit score?
High credit utilization
One of the biggest factors affecting your credit score is your credit utilization. Using 5 percent of your available credit is much different from using 50 percent. Paying down that debt to a more manageable figure is a surefire way to increase your scores.
Higher rate debts don’t necessarily affect your score, but paying those debts down first means you’ll owe less in the long term and be able to pay your debt down much more quickly. If you are paying debts off one at a time, focus on the higher rates first.
When you pay those debts down, make sure your payments are on time. Late payments have a negative affect on your credit scores, so paying the minimum on time is a better plan than paying larger amounts late. When you have extra cash, you can put some of that toward your principal and reduce your overall burden. If you’re serious about learning how to raise credit score to buy a house, keeping your payment history clean is key.
The age of your credit history
If you’re still young and haven’t built up much credit history yet, now is the time to get started. You can’t backdate your credit history, but getting started now will ensure you have the longest history possible when it comes time to apply for any loan. Building credit to buy a house isn’t something that happens overnight, so get ahead of the game by starting to build it now.
Other considerations lenders take
So, your credit score is solid, and you’ve got a good idea of what type of loan you want to apply for. Is now a good time to buy a house? There are a few more considerations before pulling any triggers.
Your credit score isn’t the only thing lenders take into account when processing your loan application. Some of these things can factor in just as heavily as your credit score, so be sure to familiarize yourself with them and make sure you’ve got strong numbers before applying for your loan.
Put simply, your debt-to-income ratio is the amount of your income that goes to pay off your current debts each month. For example, if your monthly income were $5000, and your monthly debt payments totalled $500, your debt-to-income ratio would be 10%. If your payments totalled $1000, the ratio would be 20%. Most lenders would like to see a ratio below 28% or below 36% when your mortgage is factored in.
This is the amount of the purchase price you will be financing. With a 20% down payment, your loan-to-value ratio would be 80%. With a 10% down payment, that ratio would be 90%. Any loan-to-value ratio requirements will be largely dependent upon the type of loan you are applying for, but it’s something lenders do consider.
Income and Assets
This one should come as no surprise to anyone. Lenders want to make sure loans will be paid back, so they dive deep into your finances to make sure you have the income and assets necessary to make your payments. This is another consideration that is largely dependent upon certain factors, like the amount of the loan and whether the home will be your private residence or a rental unit.
Consult with the pros
It’s never too early to talk to someone who knows what they’re talking about. Making an investment as large as a home purchase is much easier when you have support. A good lender or Realtor can teach you how to increase credit score to buy a house, and they can tell you
Is now a good time to buy a house? It depends on whether or not you’ve done your research and set yourself up for success. Get in touch with a lender today to get the ball rolling and ensure you have your ducks in a row before you start house hunting.