Should I Buy A House Now Or Wait? – youngmoneyfinances.org

Homeownership is often one of our biggest goals in life — to ditch landlords and rental apartments and put down roots in our own homes. However, the housing market and financial concerns can quickly put a damper on the dream of homeownership. It’s no surprise a lot of us are asking, Should I buy a house now or wait?

Unfortunately, there’s no one answer to that question. Buying a house is a very personal decision. What makes sense for one person might not work for another.

Keep reading to better understand your financial situation so you can make an informed decision when choosing to buy a house — or wait.

Should I buy a house now? What to think about before buying

Buying a house is a big undertaking, both financially and emotionally. There’s a lot of research, paperwork, and money that goes into the process.

What you need to do to buy a house

Whether you’re an experienced homeowner or buying your first house, the process usually looks like this:

Organize your finances and check your credit score.
Determine how much house you can afford and what you want in your home.
Save for a down payment.
Research mortgage loan options and get a pre-approval.
Research neighborhoods, schools, transportation, and other factors for your ideal home.
Start shopping for homes in your desired area.
Make an offer on a home.
Get an appraisal and home inspection on the home.
Finalize your mortgage and secure homeowners insurance.
Close on your new home, including paying closing costs.

These 10 steps might look simple on paper, but the whole home-buying process could take months. That doesn’t mean you shouldn’t buy a house though.

Reasons to buy a house now

Still, a lot of people go through the process every day, and there are plenty of reasons to buy a house now, including:

Securing a great rate on a mortgage.
Saving a significant down payment.
Planning to buy at the end of your lease.
Rent increases are beginning to outpace homeownership costs.
You’re planning to live in the home for many years.
You want to start building generational wealth.

Before jumping into homeownership, ask yourself a few key questions to get a better idea of whether or not you’re ready to buy a house.

Have you done your research?

I mentioned it before, but it’s worth saying again: home buying involves a lot of research. Here are just a few of the things to think about as you start looking at homes and asking yourself, “Should I buy a house now or wait?”

Do you have a specific city or neighborhood where you want to live?
Have you considered the local amenities, like parks, schools, restaurants, and grocery stores?
What is crime like in the area? Would you feel safe living there full-time?
What’s the commute like?
Are you planning to live in the home long-term?
Will you rent it out if you move?

Doing your due diligence now — well before you get into the buying process — can potentially save you a lot of headaches in the future.

For example, you stumble upon what you think is your dream home, but you don’t know a lot about the neighborhood. You decide to jump in with an offer anyway, only to find out after buying the house that it takes over an hour to get to work due to traffic.

In this case, a little research on travel times and distance to your office would have saved a lot of time and money.

The local market

The research continues once you know where you want to live. Now, it’s time to look at the housing market in the area. You’ll want to know if it’s currently a buyers’ market or a sellers’ market, as this can affect housing prices.

In addition, you should consider the current pricing trends in your area and local and state tax rates. Prices that are much higher or lower than usual could indicate a shift in the desirability of the area.

Taxes will also play a role in the price of homes in the area. Even if you buy a home below market value, high tax rates could leave you house poor with a monthly payment you can’t afford.

Unexpected costs of home shopping

Though it’s likely to be the biggest expense, the purchase price of your new home is far from the only cost of buying a house. Many first-time buyers are surprised to learn of the unexpected costs, so be sure you know how to save up for a house first.

First, there are several immediate fees and expenses you’ll have to cover, usually on closing day. This includes closing costs and fees related to your mortgage loan. Closing costs tend to be around 3-6% of your loan amount — which can add up quickly.

For example, you may have to pay a loan origination fee to the mortgage company simply to get your loan. This fee helps cover the administrative costs of underwriting and processing your loan.

Likewise, you’ll likely have a title search fee, which could cost a few hundred dollars. This fee pays for the title company or an attorney to search for any liens or legal problems with the home you want to buy.

Other costs may not be immediate expenses, but you’ll still have to pay them. Homeowners’ insurance and property taxes, for example, could be a large expense to buying a home, depending on where you live. Usually, these costs are rolled into your monthly mortgage payment.

Do you plan to be at the location for several years?

You may consider waiting to buy if you’re planning on moving again in a year or two due to the time and costs of purchasing a house.

On the other hand, if you plan to be at the location for several years (such as 5 years or more) you’re likely to make up mortgage interest and also closing costs. Then homeownership could make sense for you.

How’s your credit score?

Your credit score acts as a snapshot of your financial responsibility to lenders, and the higher your score, the better. You’ll increase your approval odds when applying for mortgages. Checking your credit score is essential when buying a home.

A higher credit score also often means you’ll get access to better mortgage rates. While a single percentage point might not seem like much now, paying an extra 1% in interest will add up throughout a 30-year mortgage.

Getting your credit score in shape can be a big help to lower the overall cost of buying a home.

If you don’t know your score, you can start by getting your free annual credit report. Your credit report shows your snapshot score, as well as more details about your borrowing and payment habits.

Even if you’re planning to wait to buy a house, monitoring your credit score regularly is a good idea. This can help you spot — and fix — fraud or mistakes on your credit report.

Have you saved for a down payment?

Most home buyers don’t purchase the full cost of their home immediately. You usually need a down payment, which is a lump sum of money you’ll put toward the initial purchase of the home.

The bigger your down payment, the less money you have to borrow using a mortgage. This means you’ll start your homeownership with more equity in your home.

The “standard” down payment is 20%, but not everyone is able or wants to put down a full 20% of the purchase price of a home.

For example, if you’re buying a $400,000 home, a 20% down payment is $80,000. This might be an unreasonable figure for your buying timeline.

The good news for homebuyers with smaller down payments is that there are government-backed loan programs that can help you get a home. Common loan programs include:

FHA loans
The U.S. Department of Veteran’s Affairs loans (VA Loans)
USDA Rural Development loans

Making a smaller down payment could help you get into homeownership sooner rather than later. However, putting less money down on a home purchase has its drawbacks, such as:

You’ll have less equity in the home to start.
Low down payment loan programs often have strict borrowing rules and income limits.
You may not qualify for the best mortgage rates or loan products.

If possible, it’s generally recommended to learn how to save up for a house down payment as much as possible before buying.

Can you afford a mortgage with your current expenses?

A key step in the mortgage process is getting a mortgage pre-approval. This is a letter from a lender stating they’ve approved you for a mortgage at a particular interest rate and loan amount.

Before you apply for the full amount of your preapproval, consider the monthly cost of your mortgage payments. This includes homeowners insurance premiums and property taxes.

However, the preapproval amount isn’t the same thing as how much house you can afford. Many preapprovals give buyers a bigger loan than they would realistically be able to handle each month.

You also need to consider your existing expenses. While you’ll probably drop your monthly rent when you move into a home you buy, you’ll still have most — if not all — of your other expenses.

For example, if you have a lot of student loan debt, a high car insurance rate, or an auto loan. These recurring expenses will cut down on the monthly cash flow you have available for a mortgage payment.

Can you afford repairs or renovations?

Finally, a home doesn’t stop costing you money when you buy it.

In fact, a lot of homeowners start finding problems only after they’ve moved into the home. Even small repairs can add up to a lot of cash over time, which may have you questioning, “Should I buy a house now?”

This is why it’s important to have a healthy emergency fund and budget for savings, even after buying your home. If you can keep your monthly expenses low enough to fund your savings, you’ll find it easier to tackle unexpected expenses.

For instance, shortly after my husband and I bought our current home, the gas fireplace stopped working. The repairs cost over $2,500 and were unexpected. Luckily, we had the savings and cash flow to cover the cost without affecting our other financial obligations.

Reasons you might wait to buy

Buying a house is exciting. And it’s often seen as the top financial goal you can reach. But not everyone’s ready to buy a house.

For many people, it makes sense to wait to buy a home. Check out some of the reasons you might want to wait before buying.

Not much real estate inventory

As mentioned before, being in a seller’s market can cause housing prices to go up. If the area where you want to buy your home doesn’t have a lot of homes for sale, you’ll probably pay more than you like.

Additionally, you might feel like you have to settle for a home you didn’t really want because that’s what was available.

Or, you can wait until the market tips back toward a neutral or buyer’s market. This means there’s more inventory on the market.

In turn, you’ll see lower prices and have more options when picking your dream home.

Home prices are likely to go down

It might not make sense to buy a home if you know prices are likely to drop within the next few years. In 2022, for example, home prices hit a record high. In turn, home sales dropped.

With higher prices (and increased interest rates), fewer people decided to buy. And that’s often a pretty good strategy.

In your research, you’ll probably look at historic home prices in your area.

Although prices may steadily rise over time, a sudden spike could be a sign to wait out inflated prices. If you can keep renting for a couple of years, you give yourself more time to save for a down payment, and you’ll likely get lower home prices.

Saving for homeownership

A home purchase is one of — if not the — biggest single purchase you’ll ever make. Most of us aren’t regularly spending hundreds of thousands of dollars at one time. And while you’ll probably pay the cost off over many years with a mortgage, it’s still a giant financial obligation.

Sometimes, the best thing you can do for your financial situation is to simply wait to make that big purchase. Many people choose to delay homeownership to give themselves more time to save up for a down payment.

In addition to a bigger down payment, waiting to buy can usually help you save up extra for unexpected costs like closing costs, necessary repairs, and things like new furniture.

Working on your credit score

Remember, a higher credit score usually gives you a better chance of mortgage approval and access to lower interest rates versus someone with a lower credit score.

You might want to put off buying a home so you have time to clean up your credit report and increase your credit score.

Let’s say you have a lot of debt and have missed a few payments. A mortgage lender might be wary of approving a loan and a reasonable interest rate due to past payment history.

Instead, you take a few years and focus on the best way to get out of debt and start making on-time payments each month. As a result, your credit score starts going up. When a lender sees your history of on-time payments, they’ll feel more confident lending money to you.

Expert tip

A house is a long-term financial agreement, so it’s best to ask yourself a lot of questions first, do research, and take your time.

If you feel rushed to buy a house, it’s likely not a good time to buy, regardless of what the housing market is doing.

Consider your personal situation when buying a house

Should I buy a house now or wait?

Ultimately, that’s the question you have to ask yourself. And the only way to answer it is to look inward. There’s no magic answer on when’s the best time to buy a house because everyone’s financial and housing situations are so different.

Of course, that doesn’t mean you should rush off to buy or put off buying because it seems complicated. Instead, take the time to think about your situation:

Why do you want to buy a home?
Are you happy with your current housing situation?
Are you anticipating changes to your housing?
Can you realistically afford a mortgage, homeowners insurance, taxes, and unexpected repairs?
Will you be approved for a mortgage?
Could you improve your credit score or down payment before applying?
Are home prices in your area reasonable?

Going over these questions can help you decide if buying a home now or waiting a while is the right choice for you specifically. You can also learn a lot about your personal home-buying preferences by asking others about theirs.

For example, ask your friends, family, and neighbors why they did or didn’t buy a home.

Why I bought a house at the peak of high prices

To give you a better idea of how personal home buying can be, let me share my story. My husband and I bought our current home right around the peak of the home price spike — late spring 2022.

On paper, it probably made a lot more sense to wait to buy a home once prices came down.

Additionally, the housing inventory was low, so we didn’t have a lot of options.

Still, buying made the most sense for our situation:

We were moving halfway across the country from Idaho to Iowa unexpectedly for my husband’s job — both in rural areas with low inventory.
Our Idaho home’s value had doubled, and we had significant equity in it.
We have two cats and one high-energy dog.
We also have several utility trailers and a UTV, and need space to park three large vehicles.
We qualified for great rates on a mortgage.

Home inventory was low, but finding a rental property that could fit all of our stuff (plus our pets) was essentially impossible. We would have had to rent a house to fit the outdoor equipment and vehicles. In addition, it would have to allow pets and have space for our dog to run around.

With what was available for rent and how much we had for a down payment, the cost of renting would’ve ended up being more than a mortgage. So we started on our moving out of state checklist and began looking for a home.

We also happened to find a house that fit our style, space needs, and budget.

Although we purchased the home at a likely inflated price, our large down payment and great mortgage rate mean it made the most sense for our current financial situation.

Should I wait to buy a house in a recession?

There’s been a lot of talk in recent years about an impending recession and how to prepare for a recession. Whether we’re about to enter one or not, you’re probably wondering how a recession can affect home buying.

For many people, buying a house during a recession is a risky move. Job stability might be shaky, leading to uncertainty about your monthly income. Would you be able to cover your mortgage if you lose your job?

Likewise, your down payment and emergency savings may not be as strong as they are outside of a recession.

For example, you have your down payment in an investment account to help it grow. If we entered a recession, the market is likely to go down. Suddenly, your down payment isn’t worth as much as it was before.

On the other hand, someone who is financially stable might find a recession to be a great homebuying opportunity. Home prices tend to drop during recessions. If you have a lot of savings and recession-proof jobs are available, a recession could be a great time to get a good value on your dream home.

If I can afford the house payment, should I buy a house now?

Not necessarily. Just because you make enough money to afford a house payment each month doesn’t mean that you’re ready to make such a large purchase. Also, consider if you have money for a down payment and savings for repairs and expenses.

Should I wait until the market crashes to buy a house?

The truth of the matter is that no one can predict exactly when the next housing market crash will be. Plus, there are always deals to be found in the housing market if you are patient and flexible with your search. Waiting for a housing crash should not be the sole decision you base your home purchase on.

For instance, you’d need to ensure you are financially prepared, you’ve identified a location to move to based on research and it all works for the timing of your life.

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The right time to buy a house is when you’re financially ready

Answering the question, “Should I wait to buy a house?” is a difficult thing to do. The only person who can tell you if it’s the right time to buy a house is yourself. Avoid rushing into the decision one way or the other to clearly determine if the house is an asset or a liability.

You don’t want to accidentally wind up with a house you can’t afford. You also don’t want to miss a good opportunity because you decided to wait without thinking it over.

Before you make your decision, carefully consider your financial situation and financial goals, including your savings, credit score, and career aspirations.

You should also think about your long-term house goals and research what’s going on in your local market. This will help you make the right choice for you and your family.