Photo Gallery
Is Now a Good Time to Buy a Home?
Published: 05/30/2011 by Kevin Mulligan
After the financial crisis and real estate crash, many in the United States became fearful of purchasing a home. But is that fear justified? The nightly newscasts never seem to agree on whether or not now is the best time to buy a home. Instead of relying on emotions or what an expert on television says, you should be making the best decision for your family.
Why You Shouldn't Buy a Home
Let's debunk some of the common reasons used to justify why now is a great time to buy a home.
“Interest rates are at historic lows!”
Home mortgage interest rates are very low. With the right credit score and down payment you can snag a 30-year fixed rate mortgage for under 4.75%. That is indeed a historically low number. In the mid-80s interest rates climbed over 10%. That large of a difference in your interest rate can make a drastic difference in your monthly payment.
Despite the great interest rates, this doesn't make it the best time for you to buy a home. Just because rates are low doesn't mean you can really afford to have a mortgage. Getting a mortgage and buying a house is a big deal. You need to have a down payment and have plans to stay in the area for a long time. Otherwise, renting is a better deal.
“Home values can only go up!”
After the real estate crash this reason kind of died down, but is back on an upswing because home values have fallen so far. The pitch is that because homes have been knocked down so far in value, they only have on way to go from here: up.
While this may be true in some parts of the country, you must be cautious as this sounds very similar to the rhetoric that was used during the housing boom. Everyone assumed home values would just keep going up, and many folks were left holding the bag when everything fell apart.
“A home is a great investment!”
Another reason resurrected from the housing crash. Many families bought into the idea that they could put little or money down into a home, wait 6 months, and the home's value would increase greatly. You then sell the home, pocket the return, and repeat on a new, more expensive home.
You won't be able to get away with putting no money down these days thanks to better underwriting guidelines. However, even if you could put no money down this is a terrible idea. A home is not an investment. It is a place to live. A roof over your head. Historically over the last 50-100 years, homes have returned an annual investment return of around 1%. That's a pitiful amount when you consider the amount of risk you're taking in order to “invest”.
Why You Should Buy a Home
If these aren't the reasons you're buying a home, you may me making a smart decision.
Three reasons to buy a home:
-
You've saved up a 20% down payment
-
You can afford the monthly payment
-
You plan to live in the area 10+ years
