Spring is in the air, and for sale signs are popping up on desirable houses all over the metropolitan area. But is now the right time for a new homebuyer to take the plunge? After the collapse of the housing market, it can still feel a little risky to take on this particular aspect of the American dream. Before you decide whether to keep renting or start home shopping, there are a few questions you might want to consider:
1. Why do you want to buy? The best reason to buy a house is because you love it and you know that it will make a good home for you and your family. While real estate generally appreciates you don’t know if that will definitely be the case with your house if or when you have to move. So will the house be warm and inviting home while you’re there? Buying a house with an eye on selling it eventually will lead to dissatisfaction with the house while you’re living there and possible disappointment when you do sell. So buy an affordable house you love, and you’ll never regret your purchase, even if the market takes another dip.
2. Have you taken a long hard look at your finances? While it’s much more difficult now to buy a house without a sizable down payment—think about 5% to 20% of the purchase price—people can still find themselves “house poor” if they don’t crunch some numbers before meeting with the bank. Federal Housing Administration (FHA) loans remain one of the strongest instruments for low to moderately priced homes because allow people to buy a home with a down payment as small as 3.5%. Other loans might not allow such a low down payment. In a market, like today’s, where home values are still somewhat volatile, one might to invest as little of their hard cash as possible. In my opinion, spending up to 20% on a down payment just to avoid PMI or MIP adds additional risk for you the purchaser, when weighed against the option of a much smaller 3.5% down payment and paying an approximate $100 per month.
Though it might be tempting to buy while interest rates are at historic lows and the housing crisis has made it a buyer’s market, it’s only a good idea if you can afford it. So be honest with yourself and your bank balance before you start looking at open houses.
3. Where do you see yourself in five years? Another factor that buyers will often ignore when prices and interest are low is whether this house will still be a good idea several years down the road. If you or your spouse is a student or in a job that requires occasional relocation, you’ll have to think about whether your house will be an asset or a liability if you have to move within the next five years. Similarly, you have to consider how much house you need. If you fall in love with a tiny two bedroom bungalow but would love to have a large family, will the house still suit your purposes once you start your family? Knowing generally what direction you’re heading will help you to decide if a house will really be a good place for you for the long term.
Ideally, buying a house should be an individual and personal decision, rather than a market decision. Buying a house is certainly an investment, but it is one you make emotionally and personally, as well as financially. So if the time is right for you, then it’s the right time to buy a house.