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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.
The market outlook for home buyers
These are some of the factors affecting buyers in today's market.
Higher mortgage rates
Mortgage rates began climbing in January, with the average for the 30-year fixed crossing 5% in April, up a couple of percentage points from the historically low levels of 2021. That's not what you want to hear as a buyer because lower rates make home loans more affordable.
Regardless of where average rates are, It's important to shop around for the best rate available, and then make sure you can afford the monthly mortgage payment. A home affordability calculator can help you crunch the numbers.
Competition among buyers
Demand for homes is high, but inventory is low, making this a seller's market across 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. Most homes sold in recent months were on the market for less than three weeks, according to data from the National Association of Realtors.
Higher home prices
Year-over-year home prices continue to go up. The national median price for existing homes sold in March was $375,300, up 15% from the same month in 2021, according to the NAR. Existing homes are properties that were occupied before they went on the market.
Overall, median home prices are expected to increase by 5.7% year over year in 2022, according to a survey of 20 housing and economic experts by the NAR at the end of 2021.
Tight credit requirements
Although credit requirements to get a mortgage have loosened a bit since mid-2021, lender requirements are still relatively strict. Mortgage credit availability was 30% lower in March of this year than prior to the coronavirus pandemic, according to the Mortgage Bankers Association. A drop in mortgage credit availability means it may be harder to qualify for a mortgage.
» MORE: Buying a house in 2022
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.
If your credit is marginal, it might make sense to postpone buying a house and use the time to work on building your credit.
The average FICO credit score for closed mortgage loans in the last 30 days was 737, according to ICE Mortgage Technology.
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 under 36%, although it's possible to qualify with a higher ratio. The lower your DTI, the better your chances of qualifying for a mortgage.
The average DTI for purchase mortgages in the last 30 days was 38%, according to ICE Mortgage Technology.