Only you can truly know when it’s the right time to buy your first house. Here are a few signs that the time is now.
When you are contemplating buying your first home, there are two different questions to ask yourself: Is now the right time? And, am I ready now?
Sure, now is a great time to buy a first house. Mortgage rates are at historical lows and the housing market is a buyer’s paradise with tons of homeowners desperate to sell their homes. The fact that you can get an under market house at a great rate seems like a no-brainer—especially with the new homeowner tax credit.
Still, if you’re not financially ready, it’s not worth it to overreach and get into a house that you can’t really afford. Until then, renting is your best option. You can always purchase down the line. If you get saddled with a debt now that you shouldn’t have taken in the first place, it may take years to get out from under it.
Can you afford it?
The list price of a house is only a part of the equation. If you understand your credit score, how much cash you have for down payment, and factor in costs for things like taxes, insurance, and regular maintenance, you’ll have a true understanding of what you can afford.
Another part of the equation is knowing the difference between “can” and “should.” Just because you “can” afford it doesn’t mean that you “should” purchase it. For example, you can get away with a 3.5% down payment through an FHA loan for some mortgages, but maybe you “should” wait till you have the full 20% down payment to lower your monthly costs.
Also, you “can” probably find a lender who won’t hold you to the old formula (which is not necessarily one-size-fits-all) that says you should spend no more than 28% of your pre-tax income on mortgage payments, taxes, and insurance. But that doesn’t mean that you “should” do it as a higher monthly payment may mean that you have to give up vacations or a new car every few years.
Also, just because you “can” buy a house that was formerly out of your price range, it doesn’t mean that you “should.” If a home wasn’t selling before because it was a bad value, financing it at a cheaper price probably doesn’t suddenly make it a good value for you.
If you are a couple, another thing to ask yourself is whether or not you could afford the mortgage on just one income. With today’s volatile job market, you owe it to yourself to have some insurance in case one person gets laid off.
To answer the original question, what’s the right time to buy a first home? It’s when your credit score is good enough to qualify for a low rate, your other debts are paid off or low, you have enough money in the bank to pay for closing costs, you have enough to pay for emergencies, and you feel confident that you could swing the mortgage on one salary should one person have a job that they could be laid off from.
What it comes down to is that if you can’t afford a home, then it’s not the right time to buy your first home. In the short term, renting may be the wiser (and cheaper) decision to make in a lot of situations.
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