You may have heard, “It’s a buyer’s market.” Or maybe you’ve saved plenty of money for a down payment. So, you wonder, “When Should I Buy a House?” Because buying a home is more than a financial decision. It’s an emotional milestone that marks a new chapter in your life. And timing plays a critical role in this journey. In this article, we explore the key indicators — from personal finances and lifestyle readiness to the broader market trends — that can help you determine if now is the right time to leap into homeownership.
Financial Signs You’re Ready
Of course, to buy a house, you need to be able to afford a house. So, the first few signs that you’re ready are financial ones.
You Have a Dependable Income
You could be ready to buy a house if you have a steady job that pays a livable wage. According to the National Association of Realtors®' 2024 Profile of Home Buyers and Sellers, “The typical home buyer’s median household income for 2023 rose to $108,800 from $107,000 in 2022.” While a first-time homebuyer’s income was slightly lower and a repeat buyer’s slightly higher, this gives you a good range to shoot for.
A mortgage lender will want to see proof of income to ensure you’re able to make the payments. If you’re self-employed or a contract worker whose income ebbs and flows, lenders may require additional documentation like several years of tax returns. In addition to the payments, you’ll need to afford other expenses associated with homeownership, like property taxes, insurance, and homeowner’s association fees.
Your Debt Is Manageable
A lender will check your debt-to-income (DTI) ratio before approving you for a loan. A DTI is the percentage of your gross income that goes toward paying debts each month. A high DTI indicates that you cannot afford monthly mortgage payments. A healthy DTI is below 36%, with no more than 28% being your housing costs. If your debt-to-income ratio is too high, try paying off some loans to bring it into a manageable range before applying for a mortgage.
[TIP: To calculate your debt-to-income ratio, divide your total monthly debt by your monthly gross income. The resulting percentage is your DTI.]
Your Credit Score Is 650 or Higher
A credit score is a number creditors use to determine the likelihood that you will repay borrowed money. Three major credit bureaus calculate your score by using your payment histories on previous accounts, how long you’ve maintained these accounts, how much debt you have, the types of credit you have, and how many new accounts you’ve opened within the last few months. If your credit score is below 650, most mortgage lenders will deny your application.
You Have Upfront Money
No, you don’t need $300,000 in cash to buy a home, but you will need some up-front money in the form of a down payment and closing costs on the loan. Let’s look at the two separately.
A down payment is a certain percentage of the purchase price of the home. If you’ve read that you need 20% as a down payment for a mortgage, that’s not necessarily true. The required down payment depends on the type and size of the loan. For instance, FHA loans only require a 3.5% down payment. The more money you put down, the less you borrow, which means the lower your monthly payment. So, as you work with a lender, you may find you need a larger down payment to be able to afford the home of your dreams.
Closing costs are fees due at the closing of the loan agreement. These fees include the cost of things like the appraisal, loan origination, commissions, deed recording, title search and insurance, and taxes. Typically, some of the fees are paid by the buyer and others are paid by the seller. But who pays which closing costs, if any, is always negotiable.
You Have an Emergency Fund
In addition to the down payment, lenders will want to see that you have a hefty little nest egg for emergencies. Even if the home passes an inspection and appears to be perfect in every way, life has a way of throwing curveballs. And not just to your home. You want an emergency fund for other things like a health crisis or an auto repair, as well.
Lifestyle & Personal Readiness
A rent increase may have you thinking about homeownership. But the time to buy a house is more than a financial decision. It’s also a lifestyle decision. If you’re excited about investing time and energy into customizing and improving your space, that enthusiasm can be a key indicator of readiness. But if you’d rather spend your weekends hiking the highest mountain than mowing the grass and painting the dining room, you may not be ready for the long-term commitment. Here are a few things to ask yourself to gauge whether you’re ready for homeownership.
Am I Living Where I Want to Stay for Years to Come?
Being settled in an area is a sure sign that you’re ready to buy a house. When you enjoy the neighborhood, find the amenities accommodating, are close to work and school, and have friends and family in the area, you know you’re okay to put down roots. Otherwise, it may be wiser to rent until you’re sure.
Do I Have a Solid Support Network in this Area?
A well-established network of friends, family, and connections in the area provides invaluable help whether you own a home or not. But when you do, you have plenty of people to tap for contractor recommendations and support during stressful times. Having that local safety net is an often-overlooked sign of readiness.
Do I Have a Stable Life with a Clear Vision for my Future?
If you see yourself staying with your employer, working your way through the ranks, that stability can anchor you to a location. But if you’re unsure about your career future, work for a company struggling to make payroll, or are still finding yourself, committing to homeownership may not be for you.
Am I Willing to Learn About Home Maintenance?
You don’t have to be a diehard DIYer to own a home. But knowing how to change an HVAC filter and clean the gutters is pretty essential. If you’re open to learning about maintenance, budgeting for unexpected costs, and even handling some do-it-yourself projects, you’re more likely to handle the ups and downs of homeownership confidently.
Market Conditions & Timing
Understanding market conditions and timing is also important when deciding when to buy a home. Here are a few things to consider.
Interest Rates and Local Housing Trends
The lower the interest rates, the lower your monthly mortgage payments and overall interest costs will be. Therefore, low interest rates can make borrowing more affordable. On the other hand, during a season of rising rates, you may need to move quickly to lock in a better deal.
Beyond national trends, local market dynamics play a crucial role. When you keep an eye on local housing trends, such as shifts in home prices and inventory levels, you can determine if the market is leaning in favor of buyers or sellers. Understanding your local real estate landscape is a unique sign of readiness that shows you’re not just looking at the big picture, but also are tuned into the trends affecting your specific area.
Timing: Buying vs. Renting
Market cycles can tip the scales between renting and buying. In some areas of the country, you can rent for less than you can buy. In a seller’s market, where the inventory is low and the demand is high, driving up the cost of homes, it may be wiser to rent until something shifts. Staying aware of the ebb and flow of the market will help you determine which housing option is right for you.
Next Steps if You’re Ready
When you feel ready to buy a home, it’s time to get your financial ducks in a row. But before you talk to a real estate agent or lender, do the following.
Get complete clarity of your expenses. Not just what comes up in your credit report or shows on your bank statements. Track your spending. Know where your money is going. Then, you will know where wiggle room exists in your budget when it comes to what you can afford.
Pull a credit report and ensure you understand what it means.
Decide how much cash you can put toward this project.
Once you’ve done those things, sit down with a lender. Based on your financial records, they will help you determine how much you can afford. Then, armed with a price range, you’re ready to research neighborhoods and work with a real estate agent to start looking at home options.
A combination of things will determine your homebuying readiness – financial stability, lifestyle preparedness, and an understanding of market dynamics. From having a dependable income, down payment, and good credit score to being settled in a neighborhood and being willing to commit to a life of home maintenance, many factors play into your decision. Before you take the plunge, evaluate the above points carefully. Then you’re ready to make an informed decision that aligns with your immediate needs and long-term goals.