When it comes to buying a home, there are a lot of unknowns, especially if you are a first-time homebuyer. It’s an investment that needs thoughtful consideration, as there are a lot of factors at play.
With the current financial climate, it can be difficult to determine whether you should follow through on your plans to buy a home this season. Many people have decided to wait another year to make the big purchase. However, there are still plenty of reasons why buying a home can still be a reality this year. Here are some helpful tips to consider if you are thinking about purchasing a home.
Housing Market Health Analysis
The health of the housing market is on many people’s minds – and for good reason! The 2008 financial crisis made a lasting impression on the housing market and those affected. However, even though the housing market is not necessarily unaffected by the COVID-19 pandemic, it has remained relatively strong and stable, thus far. People are still selling their homes, and people are still interested in buying. So, whether you make the decision to buy now or later, enter the housing market with confidence.
Have You Thought About A Down Payment?
Outside of the housing market, one of the most important factors in answering the question, “Is now a good time to buy a house?” is whether you have enough money saved up. Many lenders suggest you to pay at least a 20% down payment on your home to limit risk for both you and them.
However, if you don’t want to put 20% down, you can get a loan for as little as 3% down and pay private mortgage insurance (PMI). Monthly premiums for PMIs vary, and are based on the amount of the down payment and credit score,. However, if you were not anticipating a PMI being added to your monthly payment, make sure to speak with your lender about how much your PMI will be.
What Type of Mortgage Do You Want?
Beyond the upfront costs, it’s also essential to understand how mortgages work and which one works best for you. There are several types of fixed rate mortgages available, including a Conventional mortgage FHA, VA, and USDA. If you receive a fixed-rate mortgage, your payments will stay the same over the life of the loan. This is a good thing for homeowners as it makes payments predictable.
Some lenders, though, offer adjustable-rate mortgages. Buyers may seek this out, especially if rates are expected to drop, but it makes your mortgage payments less predictable. If rates go up, you may find yourself making larger payments than you expected.
The most important step is to make sure you get pre-qualified for a mortgage. This will help you determine what program will meet your needs and be the best option for you and your family.
What is Your Credit Score?
If you’re asking yourself, “Is it a good time to buy a house?” you should also be asking yourself what your credit score is. Your credit score serves as an indicator to lenders as to how safe it is to approve a loan, however, it is not the only thing taken into consideration. Lenders take into consideration the type of program and lending criteria when considering a qualifying credit score, as well as down payment.
However, if your score is not quite where it should be, you can take steps to improve it. The number one thing to remember is reducing the amount of debt you have and continuing to make on-time monthly payments on your credit cards, loans, or lines of credit. Avoid applying for any new loans or types of credits, as recent credit inquiries can knock down your score.
Think About Your Employment
Consistency is key, especially when purchasing a home. If you find yourself unemployed or temporarily out of work, then right now may not be the right time to take the leap. However, if you are still bringing home a paycheck and feel confident in your financial future, then buying a home may be an option for you. Buying a home is an investment, and ensuring you have a stable income is imperative.
Additionally, a home isn’t just an investment in the physical space, but also in the town or city where it lives. Will your employer keep you in one place for the next 10 to 20 to 30 years or beyond? If you’re not sure or anticipate moving in the near future, it’s probably not the best time to purchase a home.
Do You Have an Emergency Fund?
Having an emergency fund is more important now than ever. When thinking about purchasing a home, make sure you have extra funds set aside in case you find yourself temporarily out of work. This will give you some “cushion” in case anything arises in the future, so you will be able to keep up with mortgage payments.
Furthermore, if you’re trying to decide to buy a house now or wait until 2021, you should consider whether you’re ready for the responsibilities of homeownership. As a renter, you likely relied on a landlord or property management company to handle repairs and maintenance. If you rented an apartment or condo, you likely didn’t have to deal with lawn care or shoveling snow.
As a homeowner, though, you take on these responsibilities. If the heat goes out in the middle of the winter, you'll need to make sure you can cover the repair expenses. The same goes for issues with your water, gas, or other repairs throughout the home. These issues tend to pile up quickly, and you want to make sure you have an emergency fund that can cover these expenses.
Take a Look at Prices in the Market You Want
With the market quickly changing, keep an eye on the neighborhoods you are looking to buy in. Take time to look at the market value of the houses in that neighborhood so you can make a well-informed decision. This will help you determine if your price range is too high or even too low, so you can find the best house within your means.
Find a Supportive Financial Team
Something else to consider is to find a team of people who are going to support you. Here at Blackhawk Bank, our mortgage planners are on your side and will help you throughout the home-buying process.
Our community ties and local market knowledge will help you on your home-buying journey. Whether you are a first-time buyer or seasoned homeowner, we will be there to walk you through the process.
Are you interested in learning more about our mortgage team and how we can help you? Contact us today!
Tammy Zurfluh, SVP Mortgage Banking