You may have noticed that REALTORS® seem to always think now is a good time to buy and they can usually justify it with solid reasoning. While it can be true in general, a good time to buy has more to do with the individual than anything else. There are four things to consider.
It is a good time to buy a home when you have good credit. Since the Great Recession and the housing crisis, lenders have been required to be sure that the borrowers have good credit. This actually benefits not only the lenders but the borrowers because no one wants to buy something that they cannot afford and run the risk of losing it to foreclosure. FHA has the most lenient FICO credit score of 580+. VA requires a little higher at 620 while Fannie Mae guidelines on conventional mortgages require a 700 score.
It is a good time to buy a home when you have a good job that gives you the income to qualify for the mortgage and the likelihood that you’ll continue to be employed in the future. Two years of steady employment in the same industry with no significant gaps is a measure that lenders consider.
Lenders use qualifying ratios to make a determination. The total house payment, principal, interest, taxes and insurance, should not exceed 28% of the borrower’s monthly gross income. Their total monthly debt including the house payment should not exceed 45% of monthly gross income. There is some flexibility in the ratios for the right circumstances.
It is a good time to buy a home when you have the available funds for the down payment and closing costs plus a little cushion for the unexpected. The down payments can range from 0% for VA loans to 3.5% for FHA and 3% to 20% for conventional.
In addition to the down payment, borrowers will have closing costs that can range from 2 to 3.5% depending on the loan type. It is possible for the seller to pay the buyer’s closing costs but it needs to be negotiated in the sales contract. The lender’s underwriter wants borrowers to have cash available for unexpected expenses related to the house and their normal living expenses.
It is a good time to buy a home when you have stability … In addition to employment, stability applies to not moving soon, marital status, children and unanticipated expenses. Market or economic conditions could also affect stability.
So, the answer to the question “is it a good time to buy a home” depends on several things that are relative to the buyer. While it might be a great time to buy for one buyer, it may not be the best time for another buyer.
Make a self-assessment to the best of your knowledge on these issues and then, schedule an appointment for a live interview with a trusted mortgage professional to get their opinion based on what underwriting will look at. Call me at (805) 701-8410 if you’d like a recommendation. After you determine it is a good time to buy a home, it is time to meet with your real estate professional.