Buying a home is a BIG deal. Whether you're a first-time homebuyer or a seasoned homebuying veteran, every purchase requires careful planning and a relatively large investment of cash.
Just this past week I was asked again whether it's a good time to buy right now. My answer? It's ALWAYS a good time to buy...if it makes sense for YOU to do so right now.
I know, that answer didn't really get you anywhere. But the reality is that it's different for everyone. And it depends on what you're comparing today's market to, and what your ultimate goals are in buying a home.
For some people it really did make sense to buy real estate in 2006 when prices peaked here in Southern California. Although home prices were much higher, loans were also a lot easier to get and didn't necessarily require a huge down payment. And if you still love your home right now, plus you plan to be there for many more years to come and are still able to afford your monthly payments despite the value of your home being much less today, then perhaps it was a good purchase for you after all back in 2006. Perhaps now you wouldn't be able to qualify to purchase your same home right now, even if the value today is a lot lower.
For other people, buying a home in 2006 might not have been the smartest financial move you've ever made. The type of financing obtained might not have been the best to get, and perhaps the purchase was made based more on speculation than on satisfying current needs at the time.
So how do you know if buying real estate now is worth it? Here are 5 reasons why buying now might make sense for you:
1) You plan to live in the property for 5 or more years. In other words, you're not planning to flip the property and banking on short-term appreciation. It's hard to know where you'll be in 5 years, but if it doesn't freak you out to stay put for that long in the same home, then buying now might make sense. Why 5 years? Because some economists are saying that it'll take at least that long to ride out the rest of this downturn. Keep in mind that it could be longer, so select your home accordingly.
2) You can truly afford the monthly payments. This also means that in addition to your housing costs, you have enough monthly income to cover other necessary costs like for food, child care, clothing, etc. Plus having some spare change for fun and entertainment is good too. This also means that you can handle the monthly payments for planned changes in the foreseeable future (e.g., starting a family and raising kids, plans to go back to school, college tuition for your children, etc.).
3) There are homes available in your price range in the neighborhood you want to live in. When the "stars align" and you find the right home in the right neighborhood that you really want, that same opportunity may not be available for you again in the future. Of course prices will fluctuate over time and may even go down some more, but that may also mean more competition for you, and perhaps higher interest rates at that time may make your monthly payments higher anyhow. How do you know if it's the right home? That one's hard to describe...for many people, you just know. It's a gut feeling. Plus it fits all your home search criteria (desired number of bedrooms, bathrooms, garage space, size, and so forth). You'll know when you find it. It may not hit you like a freight train, but you'll have a good vibe about a home that will eventually grow stronger as you pursue it further.
4) Your job situation is quite stable. If there is some indication that you may lose your job, receive a reduction in income, get relocated for your work, or you plan to change careers in the near future, it may be better to hold off on buying a home until you are very comfortable your income situation.
5) You have plenty of reserves in the bank. These are monies that you have after making your down payment and paying all your closing costs. You never know when you might be laid off. You never know when an emergency medical procedure may have to be done immediately. You never know when your car may break down. There are tons of what-if scenarios out there that require some quick cash on hand so that you can pay your monthly expenses. How much do you really need? I would say to have enough money stashed away to cover your current lifestyle very comfortably for about six months at least. And if you do find yourself in that situation after buying your home, start living more frugally to help prolong those reserves until you resolve your financial situation.
Many potential buyers worry that it may be the wrong time to buy because they believe that the market hasn't bottomed out yet. Here's the thing: once we realize that the bottom was hit, we'd already be on the upswing. Then it's a scramble to find the house of your dreams under the pressure that home prices are steadily climbing again. And once there are signs of recovery in the housing market, it's likely that interest rates are not going to be at rock bottom at that time either.
So if you meet the 5 reasons listed above and have a strong desire to move, why not start the search and see where it takes you? And if you work with an agent who really cares about you, he/she should be able to guide you along the way.
For more info, please feel free to contact me.
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