You’ve decided that you want to buy a home, but you may wonder when it’s the best time to buy. The short answer to this question is easy — when you can afford to. But, if you already know purchasing a home can fit into your budget, you may be able to get a better deal or have more homes to choose from depending on the market.
Let’s explore how to know if you’re personally ready to buy a home and how the current market may affect your search.
Are you ready?
Much of the decision of if it’s the right time to buy a home comes back to your individual situation and the state of your finances. Even if you find your dream home in a buyer’s market, if you’re not able to afford it, it’s not the right time.
Down payment and closing costs
You want to have at least 10% — ideally 20% — of the purchase price of your new home saved in cash for a down payment. Although you can purchase a home for less than 10%, there are benefits to making a sizeable down payment: The seller is more likely to accept your offer, you can avoid the added cost of private mortgage insurance (PMI) if you can pay 20%, and potentially earn a lower interest rate on your mortgage.
You can use Redfin or Zillow to estimate the price of a home in your area to have a better idea of how much you’ll have to save for a down payment.
Along with your down payment, you’ll have to pay for closing costs when the sale of your new home goes through. These include fees related to securing your mortgage, title insurance, realtor commissions, etc.
Ability to pay
Don’t look only at what you can afford now — you’ll likely be paying on your mortgage for the next 15-30 years, so take a look at what your monthly payments will be after you move in and ensure it can fit into your budget.
Don’t forget to include your new homeowner’s insurance and property tax bill — usually these will be wrapped into your monthly payment to your lender. A good rule of thumb is that these bills should be no more than 25% of your monthly take-home pay.
Here are some more posts that may help you in your buying process:
Buying a Home in Another State as a First-Time Buyer
How to Buy and Sell a Home at the Same Time
Legal Aspects of Selling and Buying a Home You Should Be Aware Of