Is Now the Best Time to Buy a House?
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If you’ve been planning on buying a dream home for some time now, you might be worried about the historically high interest rates and whether you will become a homeowner. But is now the best time to buy a home?
The pandemic brought many significant financial issues to the forefront, and due to the inflation and high interest rates, many homeowners are struggling to stay above water during this tough economic time. Before jumping into buying a home, there is some preparation and decisions you should make.
In this article
Understanding today’s home buying market
Mortgage rates are at an all-time high, but there are other challenges to be aware of. The real estate market has quickly discovered the pandemic didn't stop people from buying homes. Instead, perhaps spending too much time at home made people want to upgrade while others have fled cities for cheaper destinations with the advent of work-from-home scenarios. There’s high demand for homes across the country, prices have peaked and the real estate industry is set to keep growing. This can create a variety of problems for aspiring home buyers.
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Rising home prices
When demand goes up, so does cost. According to the National Association of Realtors (NAR), the median home price in 2021 was $303,900, while today it is $426,900.
In many areas, this means homes are above market value, with prices continuing to rise. This means borrowers could end up overpaying for a home. While high mortgage prices will add to the trouble, it can lead to paying more than planned on a new home.
Increasing home competition
With demand high, another factor you should prepare for is high home competition. Homes are closing in less than 30 days, with offers being made in a matter of hours or days (depending upon location). While winter is always a slower time for the home buying industry, you should still expect increased home competition. This may mean preparing to lose a home you want or being ready to increase your offer to snag your dream home.
Strict home loan requirements
Just because mortgage rates are high, doesn’t mean your chances of securing a home loan are low. The pandemic produced many economic implications, and as a result, many banks and lenders have clamped down on their credit approval processes. While this doesn’t mean it’s impossible to get approved for a home loan, some buyers may find it a little bit harder.
Despite these slight hurdles, now may still be a great time for you to become a homeowner. If you’re able to find a home at market value (or just slightly over) and lock in the right mortgage rate.
Preparing to buy a home: a first-time homebuyer’s checklist
If you’re serious about buying a home in 2024, you’ll need to get prepared before acting. Since today’s home buying market moves a little faster than normal, it’s important to research and prepare before speaking with a real estate agent or making a bid.
Here are some steps you should follow to get ready to become a home buyer.
Check your credit score
To take advantage of low mortgage rates, you’ll need to have a good credit score (particularly with lenders limiting loans for risky buyers). Typically, you’ll need a credit score of at least 620 to get approved for a home loan, but sometimes credit scores in the high 500s can also get approved.
In 2024, with fierce competition and high mortgage rates, improving your credit is essential if you want to secure the lowest rate possible and increase your chances of getting approved. I suggest aiming for a credit score of at least 620 (though scores above 660 are more likely to get approved quickly).
I recommend checking your credit report (you can obtain a free copy from each credit bureau once a year) and taking a hard look at your scores, accounts, and payment history. Lenders typically look for a credit utilization under 30 percent, so see where you can pay down debt, automate payments to ensure your payment history is stellar, and review your report for any errors.
Understanding your credit health before applying for a home loan allows you to spend time boosting your credit score, so you can lock in an even lower mortgage rate.
Save for a down payment and closing costs
Buying a home is expensive, but it also requires more upfront costs than most buyers realize. Decide ahead of time how much down payment you’d like to have before making an offer. If you decide to save 20%, you’ll be able to avoid mortgage insurance. However, it’s also possible to buy a home with as little as 3% down (or no money down, in some cases).
However, your down payment is just one of the upfront fees you’ll need to pay. You’ll also be responsible for the appraisal, mortgage insurance (if applicable), homeowners insurance, property taxes, and agent commission. These fees can typically run between 2% and 5% of the home loan amount — and that’s on top of your down payment.
Set a home price limit
Home buying can be extremely emotional and it’s easy to make risky money decisions in the heat of the moment. Since competition is high, it’s important to do the math and calculate how much home you can comfortably afford.
To do this, you can use a home loan calculator to determine the highest monthly payment you’re able to make each month. Start by subtracting your down payment from the home price, then use a home loan calculator to determine your highest monthly payment. From there, you should be able to decide on a maximum home value.
I recommend figuring out a monthly payment you would like to make each month (best case scenario) and then determining the maximum you’re willing to make each month so that when an emotional response compels you to increase your offer, you have these figures firmly in your head. Be sure to also share them with your agent, so they can help you make the best financial decision.
Compare rates from a network of lenders
- Low fixed mortgage rates
- Check and monitor your credit for free
- Only a few steps to your best mortgage rates
- Great deals on your mortgage
First-time home buyer’s programs
If this is your first time buying a home, you’ll want to explore any first-time home buyer’s programs you might be eligible for. These programs can typically save you thousands on down payments and closing costs.
FHA home loan
An FHA (Federal Housing Administration) home loan is one of the best mortgage options for first-time buyers. You can typically get approved for a mortgage with a credit score as low as 580 and only 3.5% down. If your credit score is lower, but you can afford a 10% down payment, you may also get approved.
You’ll need to obtain mortgage insurance if paying less than 20 percent upfront, which means you’ll need to factor in this additional cost per month. Unlike conventional loans, you cannot remove mortgage insurance from an FHA loan once you reach 20% equity (though you can refinance to eliminate this expense) — so keep that in mind when deciding between loan types.
USDA loan
If you’re not looking to move to a city, a USDA home loan is a great option to consider. These loans are designed for homes located in USDA-eligible areas, which are loosely defined as any area outside of a designated city.
These home loans are great if you’re worried about down payments since you can typically get approved for 100 percent financing. You also won’t be required to purchase mortgage insurance, even with less than 20% down.
On the downside, you’ll typically need a credit score of at least 640 to get approved. There are income limits you’ll need to meet to get approved for this type of loan and they vary depending on where you’re buying. You can determine if homes in your area are USDA eligible.
VA loan
If you’re an active-duty military member, veteran, or spouse of one, you may be eligible for a VA loan. VA mortgages typically have lower interest rates than market averages and do not require down payments. There are also no credit score and mortgage insurance requirements.
On the downside, you will have to supply a funding fee that’s 2.15% of your loan amount (for 2024). If you don’t have this fee available to pay upfront, it can be rolled into your home loan and paid monthly.
Fannie Mae or Freddie Mac conventional loans
While conventional loans typically require larger down payments (up to 20%), securing a conventional loan through Fannie Mae or Freddie Mac can lower your down payment requirement to as little as 3%. They also accept as high as 50%, which is good news if you’re still paying down a high amount of student loans or credit card debt.
On the downside, you will need to pay for monthly mortgage insurance but can cancel this cost once you reach 20 percent home equity. You’ll also need a good credit score of at least 620 to get approved.
Good Neighbor Next Door
You’ll want to consider this U.S. Department of Housing and Urban Development (HUD) home loan program if you’re a teacher (K-12), law enforcement officer, firefighter, or emergency medical technician.
If you qualify, you’ll receive a 50% discount on a home that’s listed in a designated revitalization area. You’ll need to live in the residence for at least three years to qualify for the discount.
You can search for revitalization areas at the HUD website.
State and local programs
Most states, cities, and communities offer their first-time homebuyer programs to help potential homeowners get approved for a home loan. These programs might have down payment and closing cost assistance and other perks designed to benefit low-income or credit-challenged buyers.
Special programs may also be put into place for those in certain occupations or securing housing in certain areas of the state. It’s worth researching your state’s programs before selecting a mortgage type and lender.
Conventional loans
These types of home loans are the ones offered by traditional and online banks, credit unions, and financial institutions. While it’s possible to lock in low home rates through these lenders, you’ll typically need to have good credit (620, but sometimes higher) and at least a 20% down payment.
Every lender has its requirements, so be sure to research any conventional lenders before getting prequalified.
Related: First 5 Steps of the Moving Process
Understanding mortgage insurance (and how to avoid it)
If you’re buying a home now but don’t have a 20% down payment saved up, you’ll typically have to purchase mortgage insurance. The type of mortgage insurance you purchase will vary based on your home loan type, but in almost all cases, it protects your lender in case you default on your loan.
On all home mortgages (except FHA loans), you can usually cancel your mortgage insurance after you reach 20% equity — which means once you make enough payments on the principal of your loan to have paid off 20% of your home, your mortgage insurance can be removed.
If you have an FHA loan, your mortgage insurance will last for the duration of your home loan unless you refinance. You’ll need to wait until you have 20% equity in your home before refinancing to remove this requirement.
There are a few ways to avoid mortgage insurance. First, you could save up and put 20% down on your home, which will allow you to avoid mortgage insurance in most cases. You can also find home mortgages that waive mortgage insurance requirements (such as VA and USDA loans). Your state or local programs may also offer options for waiving this requirement.
Get prequalified before home shopping
Lastly, if you’re ready to start browsing homes and making offers, it can be helpful to get prequalified with the lender of your choice. It’s important to decide on which type of home loan you’re interested in before taking this step. You can also get prequalified with different lenders if you’ll be comparing rates later.
Getting prequalified is not the same as getting preapproved. When you’re pre-approved, you lock in your mortgage rate for a set period. Typically, you’ll want to get pre-approved once you find a home you’re ready to act on, but you can get pre-approved in advance. Just keep in mind if rates lower after you’re pre-approved, you’ll still be locked into the rate in your agreement.
Since today’s market is so fast-paced and competitive, getting prequalified quickly and applying for pre-approval as soon as you’re ready will allow you to move through the home buying process much more quickly.
Compare rates from a network of lenders
- Low fixed mortgage rates
- Check and monitor your credit for free
- Only a few steps to your best mortgage rates
- Great deals on your mortgage
FAQs
How long does it take to buy a home?
The home buying process can take anywhere from 30 - 60 days. However, in some markets where home buying is more competitive, this process can take less than a month. It’s important to research local buying trends in your area to get an idea about how long the process will take. Working with an agent can also help speed up the home buying process — plus your agent can lend you some insight into how long it takes to purchase homes in your area.
Is 2024 a good year to buy a house?
When deciding whether or not to buy a house, it’s most important to prepare and ensure you’re financially ready. If you are, 2024 currently has peak mortgage rates, which can cost you more on your home purchase. Additionally, many areas facing high home demand are seeing higher than average prices, which means you may end up paying more than expected for a new home.
Is it better to make a 20% down payment on a home?
There are many ways to buy a home without saving up the traditional 20% down payment. FHA, USDA, VA, and even some conventional loans all offer ways to pay as little as 3% to 3.5%. In exchange, you’ll often need to purchase mortgage insurance, which will increase your monthly payment.
The bottom line
If you’ve been contemplating buying a home in 2024, it’s important to research your local housing market before making a decision, so you can decide if you’re willing to pay inflated prices accompanied by a high mortgage rate.
Getting prepared by reviewing your credit, paying down debt, saving up for a down payment and closing costs, and understanding your home buying price point will all help you make smarter home-buying decisions when you’re ready to become a homeowner.
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Writer
Courtney Johnston is a freelance writer, specializing in finance, travel, and health. She has written for The Chicago Tribune, Benzinga, BestReviews, Mashvisor, Fundera, MoneyGeek, and The Culture Trip. She also teaches writing instruction at the University of Indianapolis. Courtney currently resides in Indianapolis.
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