When is the best time for you to buy a home? Ask any real estate agent or investor, and they’ll tell you it is “now.” But is it?
We can’t blame real estate industry workers for trying to do their jobs. It is their job to sell houses. However, is this really the best time for you to buy a home? If not, when is it?
Everyone Should Aspire to Buying a Home
There is no question that everyone ought to aspire to buying a home. There may be moments when it makes more sense to rent, or times when you have to rent temporarily, but ultimately renting is more expensive in the long run. For many, it is unsustainable. Who has enough cash stashed to cover rent for the years when they are retired?
Ultimately, everyone should be trying to buy a home – if not for the savings, or building up a nest egg to pass on. That doesn’t mean it is always easy to buy a home, or that there aren’t any challenges. So what does the current landscape look like? Does it suggest that it is better to buy or wait?
The Current Real Estate Landscape for Home Buyers
It is important to first point out that every city, and even zip code is at a slightly different point in the real estate cycle. We’re all move on the same wheel. Just at slightly different paces. Some markets may be well on their way to recovery, with few HUD foreclosures, and prices close to previous highs. Others may just be working through the pit of their own foreclosure crisis. However, all U.S. property markets are believed to only be headed one direction: up.
That means rents, interest rates, and home prices are only going to get higher. For some, this means that they have to buy because they can no longer afford to rent, or can’t qualify to rent from today’s tough landlords. Others need to buy now before they are in this situation within the next 12 months. In another 3 to 12 months, many more individuals and families will be priced out of the areas they are living in. Many will be priced out of the entire cities they have been living, working, and raising kids in.
Once we get back to ground zero for home prices, history suggests we should have another good 7 to 15 years of growth. Canada has recently proven that it can keep growing – at least for now. Ultimately, this is the most affordable most of us will see real estate in our lifetimes. Buying now will help lock in low payments, put buyers on the path to being debt free, and aid wealth building.
The Extreme Cost of Waiting to Buy a Home
Too many individuals severely underestimate the cost of waiting. Even if you aren’t priced out of your market, you’ll at least pay more, and make your bank richer if you wait.
For example: A 350,000 home, with a 100%, 30 year mortgage at 4% interest would cost $1,670.95 in principle and interest per month. Wait a year and that home might cost at least 10% more. An extra $35,000 isn’t a big deal. But if interest rates go up to 6% you’ll be paying $2,308.27 for the same home instead. That almost $670 more per month!
Who knows; maybe your income will go up more than that by next year. But what most don’t realize is that this means you are actually paying an extra $194,433.76 in interest over a 30 year loan. That’s almost enough to go buy a vacation home or investment property for cash. Or put down 70% on a brand new Lamborghini.
And these are very conservative increase projections. Many homes are already going up at 50% to 100% a year, and more. Interest rates have often shot up to 7% and even into the double digits when markets get hot.
So you can either make that money, or pay it out to someone else. Which is better?
What if I Have Bad Credit?
If you have less than great credit you are not alone. In many counties across the US 1 in 200 to 300 housing units are still in foreclosure. And that’s on top of the last 10 years of foreclosures, short sales, and bankruptcies. Think about it. It’s hard to imagine few people really still have awesome credit. Unless they were one of the first to go through foreclosure or bankruptcy back in 2005. Having some credit bruises is nothing to be ashamed of right now. We know better, and won’t let ourselves be put in the same position again. What is embarrassing is not to seize on the help available, and to get back on top.
Mortgage lenders are loosening up. There are low and no down payment loans for those with very mediocre credit scores. There are even loans for bad and no credit. You can even get a 100% financing by using an FHA loan and down payment grant, with a credit score as low as 640. FHA loans have pretty good rates too.
Of course there are individuals that will find that their credit is an obstacle. Or they may be quoted high rates that make buying unaffordable. There is no point in buying just because you can if you aren’t going to be able to make the payment the first month.
If you believe your credit will improve over the next six months, perhaps you can still beat a massive interest rate jump. Perhaps talking to a mortgage broker and making an offer on a home with a closing 90 days out will help you nail the optimal moment to buy a home at the best payments.
How or Where to Buy a Home
Fixing and rebuilding credit may only go so far, so fast for some. So in order to beat time and rising costs of buying some may have to look to alternative solutions. It may be a case of how or where to buy, not when.
Maybe finding seller finance, down payment and closing cost grants, hard money loans, or investing in income properties like duplexes first is the answer.
For others it may be finding where to buy a home. May be you might just not be able to beat this curve to buy a home in the area you live in now. Don’t panic. Do you really need to live there? Do you really want to buy and own there anyway? Maybe rising sea levels will wipe out that neighborhood in 20 years anyway. Would you be happier with no bills, less stress, and a long term investment? And more disposable income? Maybe buying a little farther out, and doing it now is the answer.
Whatever your circumstances – don’t give up. Get a plan. Map a solution to buying a home, and work it.
