Mortgage Rates Are Low, But Is Now A Good Time To Buy A House?

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Mortgage Rates Are Low, But Is Now A Good Time To Buy A House?


Zillow is one of my favorite time-wasting activities. I have my filters down to a science: a budget that’s aspirational without being completely unrealistic, 1+ bathrooms, 3+ bedrooms, 1,000+ square feet, sorted by lot size because I dream of an idyllic country lifestyle.

But in the past few months, my Zillow searches have been met with less and less success. Amid the buying frenzy inspired by the pandemic, there are simply fewer houses for sale. With mortgage rates low but rising, many prospective homebuyers may be wondering if now is the best time to buy a house, or if they should hold off until more options are available.

There are many factors that influence whether or not it’s a good time for you to buy a house, including market factors like mortgage rates and local housing markets, as well as personal factors like financial readiness and family plans.

While the right time to buy a house ultimately depends on the individual, here are some factors to consider when looking for homes.

Market factors to consider

Mortgage Rates Are Low, But Is Now A Good Time To Buy A House? - Market factors to consider

The decision to buy a new home is a personal one, and there’s no one-size-fits-all answer to the question of whether or not now is the right time to buy a home. Market factors to keep in mind when making your decision include mortgage rates, housing inventory, and the economy.

Low but rising rates

Market rates were low throughout 2020, thanks in part to the economic uncertainty inspired by the pandemic. But in 2021, rates have begun to rise again, with 30-year mortgage rates topping 3% in March according to the Wall Street Journal. This means that now may be an advantageous time to purchase a home before rates rise any further.

Low inventory

While mortgage rates are low, housing inventory is also low, and there simply aren’t that many homes available for purchase. If your Zillow searches have returned slim pickings lately, you’re definitely not alone. This housing shortage is caused in part by high demand during the pandemic. Property owners may also be reluctant to sell during uncertain times.

Because of the low housing inventory, it may be more difficult to find a house that meets your needs. The housing shortage may also contribute to increased home prices since sellers have the upper hand in the market. If you’d prefer to hold out for the perfect house, you might consider waiting until the competition isn’t quite so tight.

Economic uncertainty

Purchasing a house is a big personal and financial commitment, so you should think carefully before making the decision to purchase a house during uncertain financial times. Many people have been laid off throughout the pandemic, and still, others have had to reduce their working hours in order to care for children and other family members. If you’re worried about your ability to make monthly mortgage payments during an uncertain time, you may prefer to wait a little longer before buying.

Personal factors to consider

Mortgage Rates Are Low, But Is Now A Good Time To Buy A House? - Personal factors to consider

Market factors aren’t the only thing to consider when making a decision to purchase a home. Personal factors like your savings, your family situation, and your plans for the future also play a big role.

Your savings

One of the biggest factors that go into determining whether or not you’re ready to buy a house is your savings. Ideally, you should aim to have a down payment of 20% of the total cost of your house saved up, along with additional funds for closing costs and related fees. While it’s possible to purchase a home with a down payment of less than 20%, it will result in higher monthly mortgage payments and additional fees in some cases.

Your debt

If you have certain types of debt, it may be a better strategy to pay down those balances before you purchase a home. While you can still buy a house if you have student loans or other types of debt, it’s usually a good idea to pay down high-interest debt like credit cards first. Having a low debt-to-income ratio can help you to qualify for more favorable mortgage terms.

Your income

Before you make a big purchase like a home, you should make sure to have a stable source of income. If you’re worried about losing your job as a result of the pandemic, now might not be the best time to buy a home.

Even if your career is relatively stable, you should make sure that your income is high enough for you to comfortably afford monthly mortgage payments. A general conservative rule of thumb is that your housing costs should not take up more than a third of your income.

Your credit score

The higher your credit score, the better the mortgage rates you’ll be able to qualify for. For a conventional mortgage, you should aim for a credit score of at least 620, although it’s best to try to raise your score even higher if you can. Borrowers with credit scores of 750 and above will be able to qualify for the best rates and terms from lenders. If your credit score isn’t where you’d like it to be, you can work to increase your credit card by making on-time payments, reducing your credit utilization, and practicing responsible borrowing.

Your personal needs

Personal needs are one of the most important factors when it comes to making the decision to purchase a home. Even if it’s not the perfect time to buy a house based on market conditions, your personal circumstances may mean that it’s the right time for you. Some common reasons why people choose to buy homes include:

  • Starting a family. If you’re planning on starting a family, purchasing a home can provide additional space for you and your loved ones.
  • Moving closer to friends and family. Many people purchase homes to be closer to parents, relatives, and friends.
  • Needing more space. If you’re tired of being cooped up in a small apartment and need more space, purchasing a home may be a good option.
  • Saving money on rent. In some cases, your monthly mortgage payment may actually be lower than your monthly rent payment.
  • Achieving personal goals. For many people, purchasing their own home is a long-held goal.

What to do if you decide to buy a house now

Mortgage Rates Are Low, But Is Now A Good Time To Buy A House? - What to do if you do decide to buy a house now?

If you’re determined to purchase a home in 2021, here are the steps you should take to make your dream a reality.

Determine how much you can afford

Before you even begin to look at homes, you should first determine how much you can afford. In general, your monthly mortgage payment should not exceed 28% of your gross monthly income. If possible, you should also have enough funds saved up to put down a 20% down payment as well as cover additional closing costs.

Take a look at MU30’s home affordability calculator below to get a better sense of what you can realistically afford:

Decide where you’re looking to buy

Where you decide to put down roots is an incredibly personal decision. You might want to purchase a home that’s close to family, that’s located in an area with good schools, that’s close to your work, or that you have a personal connection to. Sometimes, it can be difficult to find a location that meets all of these requirements.

Deciding on the right location can help you to narrow down your search and focus on the most promising listings. It also makes it easier to view multiple houses in the same area. If you’re buying a house with a spouse or partner, you should make sure that you’re both on the same page about where you want to settle down.

Go house shopping

With housing inventory low, it can be tough to find the perfect home to meet your needs. It can help to find a good realtor to walk you through the process and scour promising listings on your behalf. You can also browse listings on real estate websites like Zillow, Trulia, and Realtor.com.

Keep in mind that open houses and tours may be operating differently than usual due to COVID-19. If you do go to see houses in person, be sure to practice appropriate social distancing and safety protocols.

Seal the deal

Once you’ve found your dream home and secured a mortgage, the process still isn’t over. The next step is to close the deal and officially make your purchase. You’ll need to officially put in an offer on the home for the seller to consider. If your offer is approved, you’ll need to pay for related closing costs.

Purchase homeowners insurance

Homeowners insurance might not be the first thing on your mind as a new homeowner, but it’s an important step when it comes to protecting your home. Tools like Young Alfred and Policygenius make it super easy to shop for insurance, compare rates from different providers, and purchase a home insurance policy that meets your needs.

Summary

If you’re considering buying a home in 2021, you should be sure to take current market factors into account. While there’s low housing inventory at the moment, mortgage rates are still relatively low, meaning that it might be a good time to buy if you find your dream home. Aside from market factors, you should also take personal factors into account, including your savings, credit score, and plans for the future.

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