Is it the right time to buy a house?

Deciding whether or not to buy a home is one of the most important financial decisions you can make. Not only is this a huge financial decision, but it’s also a hugely emotional one. Anyone who has made an offer, been through a bidding war and lost a home or finally got their dream home can agree that the process can have frustrating ups and downs.

The last few years have been increasingly confusing for potential buyers. COVID has caused huge concern about the future of the economy, initially prompting homebuyers to pause purchases. Eventually, lockdowns and remote working and learning inspired many to seek out additional space. This, combined with a low interest rate environment and low inventory, has spurred bidding wars and sent home prices skyrocketing.

Now the Fed is raising interest rates and the housing market is cooling. There are fewer bidding wars and we are witnessing price reductions. You may be wondering if now is the right time. The answer really depends on your needs and current financial situation. Here are four questions to ask yourself to see if you’re ready.

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Are you ready to settle in one place?

Buying a home is a long-term commitment, so it’s a good idea to consider whether you plan to make any major life changes in the near future. If you are considering changing jobs, getting married, or having children, it may be wise to wait before buying a home, as your needs will usually change when one of these major life events occurs. will produce. If you do end up buying a home, you should stick around long enough to offset the cost of the transaction, such as closing costs, your selling agent’s commission, and expenses to prepare your home for a sale. Typically, it takes about five years (opens in a new tab).

While it’s not the end of the world, you probably don’t want to buy a house and then find you have to move soon after because you’ve landed your dream job somewhere else. The best time to take on a big asset, and potentially a big liability (hello, mortgage payments!), is when you feel stable in your life and are ready to put down roots.

Have you reviewed your budget to see what you can afford?

Not only are mortgages expensive, but everything that comes with owning a home adds up. When figuring out your budget and how much it costs to own a home, don’t forget to add in things like property tax, insurance, homeowners association dues, building costs, etc. additional maintenance – think lawn maintenance, pool maintenance, home repairs, etc. – and possibly additional utility costs if you move into a bigger house. The cost of heating and cooling a large house, as well as water used for a garden and lawn, will obviously be higher, so be sure to take these into consideration.

If you’re trying to figure out how much of your budget you can spend on housing, try this yardstick: Lenders typically require principal, interest, taxes, and insurance costs to be less than 28% of your monthly gross income (opens in a new tab). Or you should consider discussing the purchase with a financial adviser, who can point you in the right direction and ensure that all your bases are covered.

Have you saved for a down payment?

If you plan to take out a loan to pay for your home, you will need to contribute towards the purchase price. The amount you need to deposit depends on the type of loan you take out. While most lenders require at least 3%, new home buyers paid 6% on average (opens in a new tab).

You may hear a lot of 20%; that’s because it’s the down payment needed to avoid paying mortgage insurance. This is insurance that protects the lender in the event of late payment. In any case, know that the more you bet on a house, the less you will have to borrow and the lower your mortgage payments will be.

How is your credit score?

Having a good credit rating will have a big impact on a lender’s ability to extend credit and the interest rate offered. A credit score over 670 (opens in a new tab) is generally what lenders are looking for in an acceptable borrower; scores between 740 and 799 are considered very good; and a score of 800 and above is excellent.

Your credit score is something you want to make sure you have in order before you apply for a mortgage. If your score isn’t where you want it to be, the best way to improve your score is to pay your credit card bills on time. Set up automatic payments so payments don’t fall through the cracks when things get busy.

Credit usage is also an important factor and is a measure of how much credit you are using at any given time. You calculate credit usage by dividing the amount you owe on all your credit cards by your total credit limit. Experts say you should keep this ratio below 30% (opens in a new tab). Also, remember that credit history also has a big impact on your score. Don’t close cards that you’ve held onto for a long time, as they can contribute to a positive credit score.

Ultimately, only you will know if it’s the right time to buy a home. By having your finances in order first, you can help make that decision more clearly and be able to take the leap when you find that special place you want to call home.

Halbert Hargrove Global Advisors, LLC (“HH”) is an SEC-registered investment adviser located in Long Beach, California. Registration does not imply a certain level of skill or training. Additional information about HH, including our registration status, fees and services, is available at www.halberthargrove.com. This blog is provided for informational purposes only and should not be construed as personalized investment advice. It should not be construed as a solicitation to offer personal trading in securities or to provide personalized investment advice. The information provided does not constitute legal, tax or accounting advice. We recommend that you seek the advice of a qualified lawyer and accountant.

This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SECOND (opens in a new tab) or with FINRA (opens in a new tab).

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