Is It a Good Time to Buy a House?

Consider current market conditions as well as your personal and financial readiness.
Nov 10, 2021

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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.

Current market advantages for home buyers

Low mortgage rates

Although mortgage rates have begun creeping up, they are still at historically low levels these days, which makes buying a home more affordable than when rates are higher. The average rate for a 30-year fixed-rate mortgage was 3.03% in October, according to rates provided to NerdWallet by Zillow.

Current market disadvantages for home buyers

Here are the challenges you'll face in today's market.

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. Eighty-six percent of existing homes sold in September 2021 were on the market for less than a month, according to the National Association of Realtors. The typical time on the market was just 17 days, unchanged from the previous month and down from 21 days in September 2020, the association said.

Higher home prices

The median existing home price was $352,800 in September, up 13.3% from September 2020, according to NAR. Prices rose year-over-year in each region of the country.

Tight credit requirements

Although credit requirements to get a mortgage have loosened a bit in the last couple of months, lender requirements are still relatively strict. Mortgage credit availability was 30% lower in October than in February 2020 before the coronavirus pandemic took hold, and was at its lowest supply since 2014, according to the Mortgage Bankers Association. That means it may be harder to qualify for a mortgage with a lower credit score.

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:

Savings

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.

Credit

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. Of purchase mortgages closed in August, about 6% were for borrowers with FICO credit scores of 600 to 649, and about 17% were for borrowers with credit scores of 650 to 699, according to mortgage data provider ICE Mortgage Technology.

The options are much slimmer with a score in the 500s. A fraction of 1% of all purchase loans were for borrowers with a FICO score of 500 to 599.

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 all closed mortgage loans in August 2021 was 741, down from an average of 752 in August 2020, according to ICE Mortgage Technology.

Debt

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.

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