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Deciding on the perfect time to buy a house is as crucial as selecting the right home itself. Various factors, including market conditions, interest rates, and even the time of year, play pivotal roles in the home-buying process.
This guide explores the nuanced landscape of real estate timing, offering insights into when you might find the best selection of homes and how to capitalize on periods when prices may be more favorable.
Whether you're a first-time buyer or looking to upgrade, understanding these dynamics can lead to a more informed and strategic purchase, ensuring you not only find your dream home but also secure it at the best possible value.
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Interest Rates
Interest rates are currently low, hovering around 3%. At the time of writing, they are creeping very slowly upward. Buying a house with a low interest rate on a mortgage makes a lot of sense. The lower the interest rate, the less you will pay over the life of the mortgage.
Interest rates are based on a number of factors, from those you can control, like your credit score, to those you cannot, like the federal funds rate. It also depends on the type of mortgage you get. Rates are determined by:
- Federal funds rate
- Credit score - higher is better
- Location - supply and demand
- Down payment - larger down payments = lower interest rates
- Interest rate type - fixed or adjustable
- Loan term - 15 years vs 30 years, fixed vs adjustable
- Mortgage type - conventional, FHA, VA etc.
A mortgage lender can help you understand all the factors and help you determine what option is best for you. In addition, you will want to be pre-approved for a mortgage. You will know how much house you can afford and will be able to make an offer immediately. In some housing markets, houses are selling minutes after listing. Different lenders have slightly different “products” and rates, so shop around among banks, credit unions and private lenders.
Timing
Every location is different when it comes to the best time to look for a house. Working with a realtor will help you determine when to start looking. However, in general, there are better seasons to look for homes.
Winter is considered a slow time in most regions. You may see lower prices and fewer bidding wars, but you won’t have as large a selection of possible homes.
In the spring, more homes go on the market with April being the most popular month. If you are looking in a particularly popular location, you will definitely want to have a loan pre-approval in hand.
Summer continues the upward trends in listings and sales. People want to be settled before the new school year starts.
September is considered the best month to buy a house. The supply is still decently sized, but prices are beginning to drop as sellers want to close the deal.
A local realtor understands the local market and can help you to know the best time to look in your desired location.
Realtor Vs FSBO (For Sale By Owner)
You do not need a realtor to buy a house, but you may find them worth hiring. Adding a realtor to the home purchase adds to the cost of the house. However, buying a home is very complex and a realtor is trained to guide you through the complexities.
Shop for a realtor. In general, any realtor can show you any home, so you can choose to work with just one. Look for someone you are comfortable with and remember that by the time you are finished, the realtor will know everything about you and your finances. If you don’t like the first person you call, you can switch!
If you choose to buy without a realtor, do your homework. You need a good home inspector to look for issues with the home that you may not notice. You’ll also need a home appraiser to compare the home against similar ones and who determine the sale price of the home. You’ll also need a title company and in some states, a surveyor to determine property lines. A realtor knows all these people. In addition, they are not emotionally involved in the purchase/sale, so they can be a better negotiator.
Current Mortgage Rates and Impacts
The average 30-year fixed mortgage rate currently sits at around 6.5%, up from 3.1% in 2021. These higher interest rates decrease homebuying power. For example, at today's rates, buyers may only qualify to borrow 15-20% less than they could have just two years ago. Improving your credit score, saving a larger down payment, and shopping mortgage lenders can help secure a lower rate.
Preparing for a Home Purchase
Before you start looking, take time to make certain that you are ready to buy. Your first step is to look at your credit report. Take the time to improve your credit score as needed. We have a number of articles about credit scores, including this
article.
Start savings towards the down payment. The general rule is 10% of the home, although different mortgage types have different requirements. The median home price in the US is $260,000. It can be very difficult to save up $26,000!
The larger the down payment the lower your loan-to-value ratio. This means that you will save with better mortgage rates and the possibility of not paying for private mortgage insurance.
Learn about fees and points. This is possibly the most confusing part of purchasing a mortgage. If you can afford to purchase the points, you can lower your interest rate and monthly payments. However, in order to be effective, you need to plan to stay in the home for at least five to six years. You must also have the money to purchase the points! Speak with your mortgage lender to understand points.
Closing costs and fees are added onto the cost of the mortgage. These include origination and underwriting of a mortgage, real estate commissions, property and transfer taxes, insurance, certain inspections, and record filing. These costs are usually about 2% to 5% of the purchase price. Some of these are negotiable with the seller. The average closing costs are $5,749 but range from $25,800 in Washington DC to $1,194 in Iowa.
If you want to purchase a home, but find that your finances are a mess and you are having trouble paying your bills, let alone saving for a home, you may need professional help. Pacific Debt, Inc can help you to settle your outstanding credit card debts, improve your credit scores, and learn how to control your finances so that you are in a better position to buy a home.
Saving for Other Costs
On top of your down payment savings, budget 2-5% of the home's price for closing costs and moving expenses. Once you become a homeowner, also be prepared to contribute around 1-4% of the home's value each year toward maintenance, repairs and periodic upgrades. Consider opening a separate savings account to build your home maintenance fund.
Alternative Buying Options
First-time homebuyers should look into special programs like FHA, USDA, and VA loans that offer low down payments and flexible credit requirements. Down payment assistance programs through state housing agencies and nonprofits can also help cover all or part of your required down payment.
As of January 2023, the median home price in the U.S. reached $359,000. The average down payment is now around 7%, or $25,130 for a median-priced home.
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