My main goal as an agent will always be to help my clients make smart real estate decisions, and one of the biggest aspects of these decisions is timing. Market conditions are of course part of timing, but realistically timing is so unique. For this post I want to move away from what the market is like, or how high interest rates are, and focus on the things in your life and financial situation that you should take into consideration when deciding if now is the right time to buy.

You Don’t Have a Down Payment Saved

This one’s a no brainer, but worth mentioning because it’s the biggest reason to wait to buy. Saving for a down payment is one of the toughest, and unavoidable, parts of buying a home. You’ll need to have a sizable amount of money saved. The more you can pay upfront, the less you’ll have to borrow (and less interest you’ll have to pay). If you don’t have a down payment saved up, you’ll need to keep saving. If you only have the bare minimum, taking some time to save more can really pay off in the long run, both in terms of the options available and even securing a better mortgage rate.

You Don’t Have Extra Money in the Bank

Closing costs are often overlooked when looking to buy a home, but it’s important that you have extra money set aside to pay for these costs. Closing costs can run from 1-4% of the actual home’s price and can’t be rolled into your monthly mortgage payments. Land transfer tax, property appraisal, home inspection, lawyer fees, and moving costs are all things you will need to budget for. If you don’t have extra money in the bank for these costs you may want to postpone your home buying search and save up so that you can cover them without going into debt. Lenders also like to see extra money in the bank that can provide a cushion if something unexpected happens.

You Have a High Debt Ratio

Debt-to-income ratios are a metric that lenders use to evaluate your ability to make mortgage payments along with your existing debts. The lower your debt-to-income ratio, the more likely you will be approved for a mortgage. If your ratio is too high, a lender could view your ability to repay your debt as poor and you may not qualify for a mortgage. Maximum limits depend on the lender, but if your ratio is 45% or over, you may have a tough time qualifying.  Taking some time to get your debts paid down will make it easier to qualify for a mortgage and will make it easier for you to allocate monthly funds towards your mortgage payments.

Your Credit Score Needs Some Work

You can still qualify for a mortgage with a low credit score, but there is a strong case towards working on improving your score before buying a home. With a low score you’re likely to face higher interest rates which will cost you more money over time. There’s also the potential of additional fees from your lender and a larger down payment requirement. If you take your time to focus on bringing your score back up, you can avoid these additional costs.

You’re Maxing Out Your Budget

Getting a larger than expected pre-approval is exciting and you may be tempted to increase your buying budget to go all out on a home that matches your pre-approval amount. But just because your pre-approved for an amount doesn’t mean it’s a smart decision to stretch your budget limit. It’s natural to assume that whatever amount you’re approved for is the amount you can afford, but there is a big difference between approval and affordability. Approval is simply what you’re able to pay under the assumption that your mortgage is your only payment, and doesn’t take into consider things like childcare, travel, or your general lifestyle. The biggest danger of dedicating all your money to your mortgage is becoming house poor and being unable to afford the other aspects of your lifestyle. If you’re maxing out on your budget to get what you want, waiting to save up more money, or waiting for a cheaper alternative to come up is the way to go.

You Plan on Moving in a Couple of Years

There’s a general rule that you should hold onto a home for at least 3-5 years before selling. This gives you enough time to recover from the transaction costs from purchasing, pay down your mortgage, and make improvements to the home. If you plan on moving sooner than that, you should wait to buy a home and consider renting instead. Renting will give you more flexibility if you feel a move is in your near future, and more time to save up a larger down payment.

When it comes to being ready to buy a home, sometimes it just takes time to get there. Taking your time to put yourself in the best position possible is always a smart move. If you’re wondering if now is the right time for you to buy, give me a call. I’d love to help you figure out the best time for you to get into your next home.

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