Tips to Avoid Buying a Home at the Wrong Time

Did you know that buying a home doesn’t depend solely on when you want to buy it? There is a right and wrong time to buy a home. Purchase your home during a downtime in the real estate market and you could end up upside down quickly. There’s also a personal timeline you should follow. Buy a home too soon and you could end up in financial disaster. It could take years to dig yourself out of it.

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So that you don’t end up in this type of predicament, use the following tips to help you buy your home at just the right time.

Research the Housing Market

If you watch the news or read the paper, you likely come across news about the real estate industry. Listen to it carefully. Did you hear that the real estate market is declining? If so, you may want to hold off on that home purchase. If you buy too soon, you’ll pay an inflated price for a home in a declining market. Before you know it, you could owe more on the mortgage than the home’s value, leaving you upside down on the home.

You can also use tools, such as Zillow. They run a market report that lets you know the status of the real estate market now; how it compares to the previous year; and even provide a prediction for what home values will do next year. You can also gather in-depth information on the average home values in each state and the average number of days homes remain on the market.

Research Mortgage Rates

Even if the real estate market is booming and you won’t find yourself upside down anytime soon, you still have to consider current mortgage rates. If rates are low, it’s a great time to buy a home. You can lock in that interest rate and enjoy the savings for many years. If rates are high, you may want to put off that purchase until they fall again.

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Let’s say the higher interest rates today will cost you an extra $50 per month. That doesn’t seem like a lot, right? But that $50 adds up over time. In just one year, you’ll pay an extra $600 for the loan. Over the course of 30 years, you’ll pay an extra $18,000. That’s a lot of money that you could have put towards your retirement and let the interest compound that way.

Determine How Much Money You Have Saved

Once you have the market conditions researched and figured out, you have to look at yourself. How much money do you have saved? Can you afford the down payment and the closing costs? Remember, closing costs can be as much as 5% of your loan amount. If you have to lower your down payment to cover those closing costs, you just increased your mortgage payment and maybe even put your loan approval at risk.

Even if you have enough cash to cover both the down payment and closing costs, do you have an emergency fund? You are buying a home, which means things are going to break and need replacing. Not to mention the other emergencies that can happen in your life whether to your car, your health, or any other area of your life. If you are depleting your emergency funds, it may not be the right time to buy a home.

Look at Your Credit Score

Finally, look at your credit score. It plays a vital role in the rate lenders provide you. If your credit score is low, but meets the loan’s requirements, you may get approved but at a much higher interest rate than you would if your score was higher.

If you bite the bullet and buy the home now, you’ll pay the price in the end, just as we discussed above. It’s better to wait until you have had time to fix your credit score. Look closely at your credit report and figure out what is bringing your score down. Is it late payments, a collection account, or are you overextended on your credit cards? Whatever the issue is, take the time to fix it before you buy a home.

Buying a home at the right time is a delicate process. You have to worry about the market and your individual factors. If you closely evaluate each issue, though, you can avoid making the mistake of buying a home at the wrong time and experiencing buyer’s remorse.

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