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When it comes to buying a home, timing isn’t everything. But it’s a big factor.
Your financial situation and how long you plan on living in a home can drive your decision, too. Broader market and economic factors also play a role in timing a home purchase.
Historically, during the spring and summer, more homes are for sale, and in winter, real estate markets cool down. But how much these differences affect your buying options or prices vary by region. Not only that, but the COVID-19 shutdowns have thrown the historical averages for a loop this year.
In April and May, when you’d normally expect to see a flurry of activity, the pandemic pushed some buyers and sellers to the sidelines. Danielle Hale, chief economist at realtor.com, saw an 18 to 20% drop in home sales in May, which is normally a busy time of year. The drop coincided with a decrease in homes listed for sale.
And with so much economic uncertainty, mortgages are harder to qualify for, as lenders have been tightening their standards.
The Best Time of Year to Buy a House
Like with anything, supply and demand play a big part in getting the best deal on a home. You want to have choices (supply), but you don’t want to have to compete with everyone else (demand).
Typically, the best time of year to buy a home is in the early fall. Families have already settled into new homes before the school year started. But the number of properties on the market is still relatively high compared to other times of the year, and sellers can be eager to sell.
Keep in mind that while buyers are, on average, picking up better deals in September, this might not hold true for you. The factors affecting real estate prices can be extremely local. You may find more competition for a property half a block farther away from a busy intersection than one right next to it.
That’s why it can be invaluable to work with a local real estate agent when determining the best time to buy. Marietta Rodriguez, president and CEO of the nonprofit housing counseling network NeighborWorks America, suggests buyers find a real estate agent specialized in the area they are looking to live.
“If they specialize in a community, they may know facts that can be really helpful to the borrower,” says Rodriguez. For example, a local pro might be aware of a new shopping center coming in or a nearby home going on the market soon.
Is 2020 a Good Year to Buy a House?
The COVID-19 pandemic has had a big impact on the housing market, but it hasn’t caused home prices to bottom out.
“The supply is still relatively limited in the housing market, and I think it’s a surprise to some people, but home prices have been relatively stable,” says Hale, noting there has even been some price growth.
A shrinking of the housing supply would normally create a seller’s market, where the number of buyers outpaces the supply of homes and prices increase. But in most markets, this hasn’t happened yet. With so much economic uncertainty, lenders have become more risk-averse and are tightening up their lending guidelines. That means fewer home buyers can qualify for a mortgage.
Chase, for example, increased the minimum credit score and down payment standards for many of its home loans in April, requiring a FICO score of 700 with a 20% down payment for certain mortgages. And other banks have raised FICO score requirements by 100 points for government-backed mortgages like FHA loans. These tighter loan standards, combined with stunning unemployment, mean fewer people can afford a home purchase.
Even though home prices haven’t tumbled, mortgage rates have remained low. Being able to lock in low rates can save you thousands of dollars over the life of your mortgage. There are opportunities out there if you have a solid credit profile and a secure job to qualify for a loan.
However, no one knows for sure what the rest of this year will look like. So if you’re not already in the process of shopping for a home, you may want to wait and see how the housing market pans out in the coming months. If jobs don’t return or job losses continue to mount, it could drive prices down. At the same time, it is prudent to ensure you won’t be personally impacted by a job loss before committing to a mortgage.
Real estate is local. Working with a real estate agent who knows the ins and outs of your market is vital to getting your timing right.
If you have a secure financial situation, you may want to take advantage of historically low mortgage rates. Even then, you shouldn’t feel rushed, as there’s no indication that rates will be going up soon.
When Is the Right Time for You to Buy a House?
Before you start the home-buying process, you should work to get your finances in order. You can’t control what direction mortgage rates are headed, or the housing market, but you can take steps to set yourself up for a successful home-buying experience.
If you take the time to save for a down payment and closing costs and work to improve your credit score, you’ll make the entire process much easier. Having a higher FICO score and more cash in the bank makes it much easier to qualify for a loan. But that’s not the only benefit. Lenders offer the lowest interest rates to those with the highest credit scores.
Also, bringing a bigger down payment to the table can help you save money by lowering your loan-to-value (LTV) ratio. Your LTV is calculated by comparing the value of the mortgage to the value of the property. So an $80,000 loan on a $100,000 home would have an LTV of 80%. Having a lower LTV can qualify you for better mortgage rates, and if your LTV is lower than 80%, you won’t need to pay for private mortgage insurance (PMI) on conventional loans. On average, PMI costs up to 1% of the total loan value annually. So if you’ve got a bigger loan, you could save hundreds of dollars a month by not having to pay it.
It would also help to take the time to learn about housing assistance programs available in your area. A housing counselor can help you understand what down payment or closing cost aid is available. “I would encourage all first-time home buyers to seek out the assistance of a HUD-approved counseling agency,” says Rodriguez. A HUD-approved housing counseling service can help you with pre-purchase counseling and education services. These agencies can charge reasonable fees for pre-purchase counseling services, but the fees must be disclosed up front. And according to HUD, these services must be provided for free if you show you cannot afford the fees.