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A buyer’s market always makes me think of elementary playground days and double-dutch jump roping: You’re on the sidelines, trying to time things just right, stutter-stepping a few times before you commit and jump in.
Indeed, there are a lot of factors to consider when you’re thinking about buying a home: Are interest rates ideal? Will the market be swinging in favor of buyers anytime soon? Has inventory eased up, and will you be able to find a home without feeling a pang of buyer’s remorse? Is your credit score 739 and you heard that 740 and up will qualify you for the best rates? Should you save 3 percent for a down payment, or 10 percent or 20 percent? And (dun-dun-duh!) how’s your job security in this impending recession?
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That’s why a nugget of advice I heard (one that’s loved by lots of financial pros and Realtors, too) is so refreshing: The best time to buy a house is when you can afford one.
It takes a really complicated financial topic and distills it into a single practical question. Of course, that question does come with some follow-ups since assessing affordability is like wrestling an octopus.
I ran the advice past some experts, including Lisa Frison, the head of financial inclusion and racial equity at Citi. “Generally speaking, you should always strive to purchase only homes that you can afford,” Frison says. “That said, affordability isn’t a one-size-fits-all term — it looks different for everyone.”
While there are macroeconomic issues around the broader definition of affordability — housing supply and demand, mortgage rates, and other factors — there are also personal factors to consider when determining if a home is affordable to you, Frison says.
Take a close look at your income, savings, credit score, and financial obligations — both present and future (think: everything from your car payment today to your anticipated childcare or eldercare spending in three years), she recommends.
“It’s also crucial to remember that purchasing a home means more than a down payment,” she says. “There are closing costs, homeowners’ insurance, taxes, and private mortgage insurance to consider.”
To give you a sense of what those homeownership costs should be, the typical threshold for the percentage of a homebuyer’s monthly gross income that should be spent on their mortgage, taxes, and insurance is 28 percent or less, she says.
Of course, affording a home is not just about qualifying for the loan; it’s also about being able to maintain the home, so you’ll want to budget for things like repairs, lawn care, HOA dues (and assessments!) and potentially renovations.
“This takes planning, but is often worthwhile, as it may ultimately provide an opportunity for consumers to afford more home in the future,” Frison says. “For example, equity built in the home and the potential for appreciation have given many consumers the financial means to move up into a larger home as their family grows or needs change.”
Once you’ve assessed your personal financial situation, the next step in determining if you can afford a home is to research the products and assistance available to you, she says.
Whether you’re interested in purchasing a home tomorrow or several years from now, Frison says, speak with a lender who can talk you through factors like mortgage pre-qualification, whether you qualify for lender assistance, and if you’re eligible for programs that allow for small down payments, grants, or closing cost support.
As for being anxious about missing out on good rates or a house you love?
Being patient isn’t always easy, but it is the most prudent path to take when considering such a sizable investment, she says.
“While saving up to buy and stay in a home is important, my advice is to make sure you’re not using saving as a barrier to wait on making this big — and to many, overwhelming — life decision,” Frison says.
“One thing we often hear is that consumers are waiting for the ‘perfect moment’ to purchase a home. The reality is, in today’s economy, there’s no such thing as the ‘perfect moment.’ If you sit on the sidelines too long, you might miss a chance to jump into the game and build wealth.”