If you're wondering whether it's a good time to buy a house, ask this instead: Is it a good time in my life to buy a house?
Current economic indicators and the state of your local housing market give important context for your decision. But whether this is a good time for you to buy a house also depends on your financial situation, life goals and readiness to become a homeowner.
Here's what to consider.
Current market advantages for home buyers
Mortgage rates are at historic lows these days, which makes buying a home more affordable than when rates are higher. The average percentage rate for a 30-year fixed-rate mortgage was 2.88% in December, down more than one percentage point from December 2019, according to NerdWallet's daily rates survey.
Current market challenges for home buyers
Here are some of the factors that can make buying a home challenging now.
Competition among buyers
Demand for homes is high, but inventory is low, making this a seller's market in many areas of the country. A seller's market happens when there are more prospective buyers than homes for sale.
The stiff competition for homes means fewer choices, higher prices and quicker sales. Seventy percent of existing homes sold in December 2020 were on the market for less than a month, according to the National Association of Realtors.
Higher home prices
The median existing home price was $309,800 in December, up 12.9% from December 2019, according to NAR. Prices rose year-over-year in each of the four major regions of the country.
Social distancing logistics
The COVID-19 pandemic has also changed some of the logistics of buying a home. Depending on where you live, be prepared for an adapted process, such as video home tours.
Stricter lender requirements
Since the pandemic began, lenders have set stricter criteria for mortgages, which means it may be harder to qualify if you have a credit score in the 500s or low 600s.
Of purchase loans that closed in December 2020, 6% were for borrowers with credit scores of 600 to 649, according to mortgage data provider Ellie Mae. Less than 1% of purchase mortgages that closed in December were for borrowers with credit scores under 600.
» MORE: Buying a house in 2021
Your readiness to buy a home
Ask yourself these questions to explore whether you're ready to buy a home.
Prepared to put down roots?
Think about your life goals, relationships and interests. How long can you see yourself living in this location?
Ideally you'd want to remain in the home long enough for rising property values and your equity to exceed the costs of buying and selling, including real estate commissions and mortgage closing costs. That will typically take a number of years.
You could also be subject to capital gains taxes if the home appreciates in value and you sell it after less than two years.
How's your job security?
A mortgage is a big commitment and can become a stressful burden after a job loss, so it's not a good time to buy a home if you think you'll get laid off.
Wait until your employment is stable before thinking about buying a house.
Are you financially prepared?
Here are the three main ingredients to evaluate:
You'll need money for a down payment and mortgage closing costs, and for moving and other expenses after you buy the home. The down payment requirements vary by the type of mortgage and the lender. The more you put down, the lower your monthly mortgage payment.
» MORE: How to save money for a house
Lenders generally offer the best mortgage rates and terms to borrowers with credit scores of 740 and above, although you can qualify for a mortgage with a score in the 600s. The options are much slimmer with a score in the 500s.
The average FICO credit score for all closed mortgage loans in December 2020 was 751, up from an average of 735 in December 2019, according to mortgage data provider Ellie Mae.
If your credit is marginal, it might make sense to postpone buying a house and use the time to work on building your credit.
Lenders look at your debt-to-income ratio, or DTI, to help determine whether you qualify for a mortgage. Your DTI is the percentage of your monthly gross income that goes toward monthly debt payments, including housing costs, as well as car, student loan, credit card and other debt obligations. Lenders like to see a DTI of 36% or below. The lower your DTI, the better your chances of qualifying for a mortgage.