Ever since 2020, the housing market has been an absolute roller coaster! So many people looking to purchase homes however there wasn’t even enough homes available, causing a crazy bidding war where people started offering above asking price just to be considered a candidate. Now that we are in 2022 we are starting to see more houses available but the interest rates went up…… So how is one supposed to know when is a good time to buy? Is it a waiting game or just go for it?
As I start to learn and understand the mentality of home buying, I came up with the conclusion that there is no black and white answer to these questions. The answer depends on you and where you are. If you think about it from a logistical standpoint, the cost of the home goes down when the interest rates go up, so one aspect costs less when another costs more.
After speaking with Meyer, the senior loan officer at Epic Mortgage, he explained that there really is no rhyme or reason for knowing when to buy. The main variable to knowing if it is the right time is you! He explained to me there are typically 3 main factors that might help you know if it is a good time. Credit Score, How much you can put down, and Debt to Income Ration:
- Credit Score: Your credit score gives the lender an idea about whether you’re likely to make payments responsibly even if some factors change in your life. Even a good and a great credit score can effect your mortgage rate. A person with a credit score of 680-699 range might pay approximately 0.399% more points higher than a person with a 760-850 score. Overtime the “minor” difference in percentage can really add up. In 20 years, someone with a 680-699 score will still pay over $20,000 more in interest on a $244,000 mortgage than a person with a higher loan. So in result, before you even start inquiring about purchasing a home, do your best to bring up your credit score as high as possible. This could potentially be saving you thousands of dollars.
- How much money you can put down for a down payment: What is a down payment? A down payment is the price you pay upfront at closing. Generally, if you put less money down on a home at closing, you’ll pay more in fees and interest over the loan’s lifetime. So with this being said, ask yourself. ” How much money can I realistically put down towards my home?” There are loan programs that require as little as 3% however, if you pay 20% then you would be owing less overall. Also when 20% is down, there is a possibility of removing mortgage insurance. Potentially saving you even more in the long run!
- Debt to Income Ratio (DTI): Debt to income ratio or DTI is the percentage of your monthly income sources verses your monthly debt. This ratio helps the lender get a better idea if you are able to afford the home you would like to purchase. Most lenders want your debt-to-income ration to be no more than 36%, but some loan programs may require a lower percentage to qualify.
In conclusion, it is not about the housing market or the interest rates to know if it is a good time to buy. It is about you! Knowing what you can realistically work with.
