Can I delay buying a house in the current market?
Typically, your financial circumstances and current living situation provide the most insight into your ability to delay purchasing a home. Interest rates have risen, so while home prices may drop, the borrowing costs are higher. This makes finding the right home at the right price even more important, and unfortunately, that can take a significant amount of time.
While rates are high and home prices are falling, delaying a purchase could prove beneficial if interest rates start dropping. However, many home buyers refinance their mortgages when rates eventually drop.
If your lease expires soon and you want to explore ownership rather than rentals, you may want to discuss a month-to-month option with your landlord. This can provide you flexibility to continue house shopping, without being locked into an annual lease.
Am I ready to buy a home in the current market?
If you want to move forward with a home purchase, review your financial situation and the expected monthly and annual costs of your purchase, including the anticipated taxes and insurance costs. Unless you plan to make an all-cash offer, you will have to determine your maximum down payment, maximum monthly payment, credit score, and debt-to-income ratio.
Down payments
You no longer necessarily have to put 20% down on the purchase price for a home. That said, the more you can pay upfront, the better deal you can get from a mortgage lender. If you plan on selling your current home, you can put the equity towards the new purchase. You might also be able to use your 401(k) to buy a house.
A larger down payment could also lower interest rates and eliminate private mortgage insurance. If you have the money available for a down payment of 20% or more, buying a home when rates are high and the demand is lower can be good. After all, you can always refinance later when interest rates go back down.
Credit score
Your credit score can impact the interest rates offered on a mortgage or whether you even qualify for a mortgage at all. If you have a low credit score, you may want to focus on improving it before buying a home. You can enter the market later when you qualify for lower rates.
Debt-to-income ratio
This is the ratio of your monthly debt payments to monthly income. If you pay $1,000 each month for credit cards, student loans, and other debts, and your monthly income is $3,000, your debt-to-income ratio (DTI) is 33%. Many mortgage lenders require a DTI of less than 36% while others cap eligibility at 45% for certain loans. The lower your DTI, the better your loan terms. You can reduce your DTI by paying down debt or increasing income.
If you find a house that you love, use a Home Purchase Worksheet to determine whether it is in your budget.
Will I risk rate hikes and inflated home sales prices by waiting?
Historically, interest rates like today’s do not last forever. That said, it is challenging to anticipate what the Federal Reserve will do next. If you wait to buy a home, you risk even higher mortgage interest rates.
The trends seem to be “higher for longer,” at least based on recent activity in the real estate market. Housing prices are slowly leveling off, though, so it is possible that prices will remain fairly stable over the coming year. If demand does not increase, rates may decrease.
How do I navigate my local market?
No one knows how long high interest rates and home prices will last, but there are experts who know your local market that you can turn to. Real estate professionals can tell you about the home-buying process in your area, and may know more details about the comparable properties in your market.
If you have questions about your local market, you may want to consider talking to:
- Real estate agents that can advise you about trends in housing prices and interest rates, while helping you find your dream home.
- A real estate lawyer can answer legal questions, inform you about rights, risks, and obligations, while also preparing important legal documents for you.
- Financial professionals can set you up to be ready for a home purchase by helping you establish a budget, find the best mortgage terms, and develop a financial plan for your purchase.
If you have legal questions about buying a home, reach out to a Rocket Lawyer network attorney for affordable legal advice. If you need tax help, Rocket Lawyer can now match you with a tax pro for affordable and convenient tax filing services. Don't do your taxes™ – Let us do them for you.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.
