Should I buy a house now, or wait?

David McMillin

Buy now, or wait? That’s the question prospective homeowners have been struggling to answer in today’s housing market. Home prices have been skyrocketing recently, and the Federal Reserve’s work to tame inflation sent mortgage rates soaring, too.

The combination has led many would-be buyers to pick the “wait” side of the equation. The volume of existing home sales was down 1.9 percent from April 2023 to April 2024, according to the National Association of Realtors (NAR). And, according to the Fannie Mae Home Purchase Sentiment Index released in May 2024, 79 percent of consumers believe it’s a bad time to buy a house.

However, after being at a constant disadvantage for the past few years, things have started to look better for buyers in some respects. For example, days-on-market figures are up, giving buyers more time to make an informed decision. NAR data shows that homes typically spent 26 days on the market before selling in April, up from 22 days a year ago. And available housing inventory, while still low, is rising — up 9 percent month-over-month and a healthy 16.3 percent year-over-year, per NAR.

April’s National Housing Report from RE/MAX, one of the biggest real estate brokerages in the country, also reported a sharp uptick in new listings, up 18.2 percent from April 2023. “We’ve started the busy homebuying season on a very good note,” said RE/MAX president Amy Lessinger in the report. “This has happened without a significant drop in interest rates — suggesting that buyers and sellers may be less apt to delay their plans this year.”

So, is it a good time to buy a home? Or is it better to wait on the sidelines, in the hopes that either prices or rates see a significant drop soon? And are there still concerns about a possible recession? Here are some key considerations to help determine the way forward.

Is now a good time to buy a house?

Mortgage rates have backed off from the 8 percent highs hit in October, but they’re still above 7 percent. And home prices are high as well: April NAR data showed that prices have risen year-over-year for 10 consecutive months. Together, these factors might dissuade you from buying right now, and that’s understandable.

No matter which way the real estate market is leaning, though, buying now means you can start building equity immediately. It also means avoiding the potential for additional mortgage rate increases later: Rising rates can spell serious trouble for your monthly budget, and they also result in paying more in interest over the life of the loan.

“If a buyer finds a property they would like to call home, they should not delay,” says Stacey Froelich, a broker. “You cannot time the market, and a home should be a long-term investment.”

“When mortgage rates drop and more buyers come back into the market, home prices will rise,” Melissa Cohn, regional vice president of William Raveis Mortgage recently told her newsletter subscribers. “Remember, you ‘Marry the house and date the rate.’” To put it another way, buy now if you find the right place — you can always refinance later.

In general, if you can answer yes to these three questions, now is a good time to buy.

1. Do you have excellent credit? Anytime you’re borrowing money, start by checking your credit score. The best deals on mortgages will be available to those with the best scores — in fact, the median credit score for mortgage borrowers in the first quarter of 2024 was a very high 770, according to the Federal Reserve Bank. If you have demonstrated that you are a low-risk borrower with a history of on-time payments, you’ll be in line for the lowest mortgage rates a lender offers.
2. Have you saved enough for a down payment? In addition to paying your bills on time, you should be sitting on a sizable chunk of change for a down payment. The more you can pay upfront, the less you’ll have to borrow (and so the less interest you’ll have to pay). Make sure you’ll have plenty left over, too: Lenders like to see additional cash reserves that can provide a cushion if something unexpected happens.
3. Are you planning to stay in the home for a while? Beyond the purchase price, buying a home comes with closing costs that can run thousands more. So, to justify those one-time transaction costs, it’s wise to be reasonably certain that you won’t move again anytime soon — or that you’ll be financially stable enough to hold on to the property and rent it out. Selling a home very soon after buying can have serious tax implications.

Should I buy a house now or wait?

Ultimately, the decision of when to buy a home is up to you. Life goes on, whether the timing is perfect or not. If you’re anxious to become a homeowner, you’ve met the criteria above and you’re financially stable, go ahead and start house-hunting.

If you’re holding out for lower mortgage rates, a bit of patience might be in order. They have been volatile lately, topping 8 percent in October 2023 before falling back below 7 percent, and now above 7 percent again. That’s more than a full percentage point swing in just a few months.

Next steps

Trying to buy a house right now might feel overwhelming, but waiting too long can present challenges as well. Review your finances in detail, and think about how much you’re able to pay upfront as a down payment. Be sure to take the pulse of the town in which you’re hoping to live. Then, talk with an experienced local real estate agent to figure out whether you should buy now or wait until the market is a bit more friendly to your bank account.

Do I Really Need a 20 Percent Down Payment for a House?

Eric J. Martin

Eager to purchase a home? You’ll likely need to save up for a down payment. This represents the initial portion of a home’s purchase price, and you pay it upfront, so it’s not part of the amount financed through your mortgage loan.

That begs the question, how much of a down payment do you actually need? Conventional wisdom says that 20 percent of the home’s price is standard. This is daunting for many people, and with good reason: On a $350,000 home, 20 percent is $70,000 — a huge sum to have to pay all at once.

But don’t let that number keep you from your homeownership dreams. The truth is, it’s possible to buy a house with a much lower down payment, or even none at all if you qualify. Read on to learn more.

Do You Have To Put 20 Percent Down on a House?

The down payment you make on a home represents a percentage of its purchase price, so the amount you need depends largely on the price of the home you’re buying. The more expensive the home, the more money you’ll need for a down payment.

But a lot also depends on the type of mortgage you choose. A 20 percent down payment may be traditional, but it’s not mandatory — in fact, according to 2023 data from the National Association of Realtors, the median down payment for U.S. homebuyers was 14 percent of the purchase price, not 20. Conventional loans can require as little as 3 percent down for qualified borrowers, while FHA loans can be had for as low as 3.5 percent if you meet the credit requirements.

Regardless of price or loan type, though, keep in mind that the more money you put down upfront, the less you will have to borrow. Borrowing less equates to lower monthly payments, and less interest paid over the life of the loan. So no matter what your loan requires as a minimum, it’s in your best interest to make as large of a down payment as you can afford.

Minimum Down Payment Requirements

Most of these minimums require you to meet some level of eligibility standards in order to qualify. For example, FHA loans at 3.5 percent are only available to those with credit scores of 580 or above. VA loan borrowers must meet requirements set forth by the Department of Veterans Affairs. And for a USDA loan, you must buy a rural property that meets specific criteria.

Private Mortgage Insurance

Private mortgage insurance, often abbreviated as PMI, is another reason to opt for a 20 percent down payment if at all possible. If more than 80 percent of a property’s cost is being financed, most conventional lenders will charge this additional fee every month as a safeguard against default. In other words, if you put down less than 20 percent, it will add a bit more to your monthly payments in the form of PMI. The exact amount depends on how much you did put down and what your interest rate is.

Fortunately, PMI will not usually extend for the entire life of a conventional loan. Once you’ve accumulated 20 percent equity in your home, either through gradually paying down your balance or due to an increase in home values, it can be removed. (If this does not happen automatically, contact your lender to discuss it.)

Note that FHA loans have their own slightly different version of mortgage insurance, which entails an initial payment and ongoing annual mortgage insurance premiums.

Down Payment Assistance

If you’re finding it challenging to save up enough cash for a down payment, help is available. The federal government, and most state and local governments too, offer various down payment assistance programs designed to help people achieve homeownership. If you qualify, these can help you cover down payment and/or closing costs, typically in the form of grants and low-interest, deferred-payment or forgivable loans. Eligibility requirements and availability vary from one program to the next. Here are some good places to start looking:

• At the federal level: The U.S. Department of Housing and Urban Development’s website lists local homebuying programs by state.
• At the state level: Many states’ Housing Finance Agencies provide homebuying aid and education.
• At the local level: Plenty of cities and counties offer down payment assistance programs, too, especially for first-time purchasers. Check your municipality’s website for details, or try searching at Down Payment Resource.

20 Percent vs. Smaller Down Payment

If you put down at least 20 percent on your home purchase, you’ll see several benefits:

• Saving money: “With a larger down payment, your monthly mortgage payment will be lower, and you may qualify for better rates or terms,” says Diane Hughes, executive vice president and director of mortgage lending at UMB Bank in Kansas City, Missouri.
• Financial stability: A larger down payment makes lenders see you more favorably and demonstrates financial stability, which can improve the chances of loan approval. It also gives you more stability once you own the home: “When you put more money down, you have more cushion to withstand market fluctuations and their impact on the value of your home,” says Ashley Moore, community lending manager for JPMorgan Chase in Houston.
• No PMI: A 20 percent down payment means you won’t have to pay for private mortgage insurance.

While a smaller down payment saves you money upfront, it has serious long-term drawbacks:

• A bigger loan: Putting down less upfront means borrowing more to make the purchase, which makes for higher monthly payments and more interest paid over time.
• Higher costs: Your mortgage interest rate and loan costs could be higher if you put down less upfront. “It can increase the cost to the borrower when you put less than 20 percent down, as many loans are priced based on factors relating to risk,” says Scott Griffin, founder of Scott Griffin Financial in Los Angeles.
• PMI: You will likely be required to pay for PMI, which adds to your monthly payments.

Is It Ever Smart To Put Down Less Than 20 Percent?

For most homebuyers, a down payment of less than 20 percent will generally cost more money in the long run. But if saving up that kind of money will keep you from ever owning a home, it’s worth considering.

“Putting down less than 20 percent on your home may be a good idea if you have a good household income but haven’t had time to save up for a down payment,” Moore says. “It can also be a good idea if a large down payment will almost completely deplete your savings, or if it is the only thing preventing you from buying a home.”

5 Top Homebuying Mistakes Millennials Make

and How To Avoid Them

Yaёl Bizouati-Kennedy

It’s a rough housing market for first-time homebuyers. Between soaring mortgage rates, low inventory — partly due to the “lock in effect” of owners not wanting to let go of the homes they bought with lower rates — and high prices, many of them are left on the sidelines.

For millennial homebuyers, the road to homeownership can be particularly difficult — as this cohort is already dealing with several financial responsibilities, including having a family, resuming the payment of student loans or taking care of aging parents.

Yet, they make up a large part of first-time homebuyers. First-time buyers made up 26% of all home buyers, and 70% of younger millennials and 46% of older millennials were first-time home buyers in 2023, according to the National Association of Realtors (NAR).

Not Differentiating Between Wants and Needs and Wanting It All

Many first-time millennial buyers are guilty of wanting it all, the big, move-in ready house with a garage in a desirable neighborhood “that oozes curb appeal with interiors so pretty they could be featured on Instagram.”

“But that may not be realistic given the high prices of homes, elevated mortgage rates, and lack of homes on the market,” said Clare Trapasso, executive news editor, Realtor.com.

In turn, she said they have to be willing to compromise on square footage, location and amenities to find a home that fits into their budget.

“They should think about what they need versus just what they want,” Trapasso said.

Kurt Carlton, co-founder and president, New Western, echoed the sentiment, saying that the perfect house might not exist, but if a buyer can be flexible and prioritize essential features, this will allow them to focus on what truly matters and get it as close to perfect as possible.

Not Considering All the Costs Involved

While it can be easy to focus solely on the down payment amount — which can be fairly substantial — there are also many homebuying costs that millennials should not ignore, such as closing fees, HOA fees or insurance.

“These can add up and it is super important to look at the purchase holistically,” said Chelsea Werner, global real estate advisor at Sotheby’s.

Michael Micheletti, chief communications officer at Unlock Technologies, further argued that it’s also important to consider long-term costs, such as whether you will have the resources to keep up the home after you buy it.

“Some experts suggest budgeting 1% of the home’s purchase price each year for maintenance; others suggest at least 3%,” he added.

In addition, he noted that there will also be mortgage processing fees for services such as appraisals, loan processing and underwriting.

“Before you start house hunting, It’s a good idea to create a budget that incorporates all home-related expenses. Be honest and realistic with yourself, and you’ll stand a much better chance of not overextending,” he added.

Failing To Make a ‘Home’ Budget and Sticking To It

Additional common mistakes first-time millennial homebuyers make include failing to create a budget and sticking to it, some experts said.

“The first year of home ownership is often challenging, especially for those transitioning from renting to owning,” said Parry Ermogenous, principal broker, owner at NextHome Empire. “It’s crucial to work hard, be conservative, budget properly, and maintain good records.”

Ermogenous added that many new homeowners may underestimate expenses or encounter unexpected repairs despite a favorable home inspection. To avoid these pitfalls, it’s essential to plan ahead, anticipate potential costs and build a “rainy day” fund for unforeseen expenses, he added.

Feeling Married To a Lender

Just because you’ve invested time in the process doesn’t mean you need to sign on the dotted line — buying a home is one of the most important financial decisions of your life, and it’s important to, above all else, be focused on what’s best for you, said Zach Robbins, finance expert, founder, Loanfolk.

In turn, Robbins said that it’s essential for millennials to shop around and “to go deep with a few lenders,” and to not only find the best rate but build a contingency plan if, for some reason, your lead lender can’t perform.

“Comparison shopping is even built into how credit bureaus record credit profile inquiries. For up to 45 days, all mortgage inquiries only count as one inquiry on your credit report. It can be real work, but it can be worthwhile to evaluate multiple deals thoroughly,” he added.

Not Realizing That Paying Debt and Raising Credit Scores Matters

Millennial buyers may not realize how important it is to pay down debt and work on raising their credit scores before trying to buy a home.

As Realtor.com’s Trapasso explained, the higher a borrower’s debt is, the less they can borrow to finance a home purchase.

“Also important are credit scores,” she said. “The higher a borrower’s credit score, the more favorable a mortgage they can secure. Often these buyers will be offered lower mortgage rates and lower fees on their loans. This is because lenders see them as less risky borrowers, who are more likely to make their mortgage payments on time. “

In turn, Trapasso recommended that buyers sit down with a calculator and a list of their daily, weekly, monthly and annual expenses and figure out what sort of mortgage payment they can realistically afford.

“There should be enough left over each month to give them a cushion in case something unexpectedly expensive crops up,” she added, noting that they should also do their best to hold onto some of their savings after purchasing a home.

Homebuying Guide: 5 Expert Tips

for Buying a Home This Winter

Leslie Cook

The real estate market in the final month of 2023 and into 2024 will be very different from other years.

The fall/winter months are when we typically see a slowdown in homebuying activity. The school year is in full gear, the weather turns cooler, and fewer people are out searching for homes. Home prices tend to slide as well, as buyer demand cools, making the months before and after the new year a good time to find a deal.

But this year is very unusual. If the pandemic housing market was red hot, the post-pandemic market is now ice cold. Both buyers and sellers are staying on the sidelines as mortgage rates remain above 7% and home prices hover near record highs. As a result, home sales are at their slowest pace since 2008 and many buyers who signed purchase contracts in the last few months are backing out of their deals at the last minute.

Still, life goes on, and many buyers don’t have the luxury of waiting for the “perfect time to buy,” says Amit Arora, adding that the “best time to buy is your time.”

How to buy a house in today’s market

Today’s housing market is challenging for homebuyers, who can use any help they can get to navigate some rough seas. These tips can help smooth the journey, especially for those in the market for their first home.

1. Narrow down what to look for in a home

In a market where there aren’t many options to choose from, you have to be flexible when it comes to your home search. You may have to compromise on some of the features you’d like, as well as the location.

Buyers have to be “very clear about their needs versus wants,” says Bianca D’Alessio, a real estate broker with Nest Seekers International. For example, if having a third bedroom is more important than having a yard, then you focus on homes that have three bedrooms.

Make a list of the must-haves you’re not willing to compromise on and a second list with those “wants” you could live without. That way, you can quickly act when you come across a home that fulfills your first list, and if it so happens to check some boxes on your second list, consider it a bonus. But if you wait for a home that covers all your needs and wants, you may be waiting a long time.

2. Research different housing markets

You need to set the right expectations for your home search. Research different neighborhoods, find out how much buyer interest there is, and see how much for-sale inventory is currently available. Online listing sites are a good source for this information, but your best bet will be working with a good real estate agent (more on this below). The goal is to get a good idea of how competitive the market is and whether home prices are rising or falling.

Shop around. It’s important not to limit yourself to a specific neighborhood. Consider other areas that you may not have been initially on your radar. You may find the right home in a less competitive market that you might have otherwise skipped.

You should also be flexible regarding the style of home you’re looking for. Even if you’re in the market for a ranch-style home, it doesn’t hurt to look at other designs. You may find that a duplex has all the features you “need” plus some you “want.”

3. Pick the right real estate agent

If you’ve already bought and sold a few homes, you probably feel comfortable navigating the housing market on your own. You know what to look for and can avoid some common beginner missteps.

But especially if you’re a first-time homebuyer, working with an agent familiar with the markets that interest you can give you a leg up. A good real estate agent can give you insights into how competitive a market is and the price range of available homes for sale.

More importantly, real estate agents can help identify off-market homes that won’t appear on listing sites. In some cases, these could be “pocket listings” or homes for sale but not widely advertised. In other cases, says D’Alessio, agents could know about homeowners who are interested in selling but don’t “want to go through the process” of prepping and listing the property.

4. Calculate how much house you can afford

Mortgage rates are at 21-year highs, so it’s more important than ever to look beyond just home prices and consider the overall cost of the purchase.

A mortgage calculator estimates how much your monthly payments will be considering different loan amounts, down payments and mortgage rate scenarios. This is how you can figure out how much house you can afford. Make sure to do the math with higher and lower rates to see how your monthly payment would change. For example, a $450,000 loan at 7.22%, Freddie Mac’s current average rate for a 30-year fixed-rate loan, would have a $3,060 monthly payment (without taxes or insurance). If the rate goes up to 7.50%, that payment goes up to $3,146.

Mortgage rates are expected to ease eventually, so you may be able to refinance in the future at a lower rate and save money. But no one knows when rates will decrease or by how much, so it’s important “not to depend on refinancing for affordability,” says Hannah Jones, senior economic research analyst at Realtor.com, adding that “buyers should not take on a loan today that they cannot afford comfortably in their current [financial] situation.”

5. Be creative with your home search and mortgage financing

In a tough market, you sometimes have to think outside the box. Both Arora and D’Alessio recommend being flexible throughout the homebuying process and considering options you may not initially believe will work.

For example, shopping around among different mortgage lenders, such as banks, credit unions and online lenders, can lead to significant savings on monthly payments. Many lenders also offer rate buydown options and lender credits to help offset today’s high rates and bring a home purchase within reach.

Being creative also means looking at homes you might skip. Don’t overlook homes that have been on the market for a while. Many people assume that a home that hasn’t sold quickly must have something wrong with it. That’s not always the case. Sometimes, notes Arora, the home may have been overpriced, and the owners may now have more incentive to sell at a more reasonable price or with significant concessions.

How Long Does It Take to Close a Mortgage?

Timeline to Close

Rae Hartley Beck

After months of searching and having several offers rejected, you’re finally under contract and can start bribing your relatives to come help you move. Congrats! But what day do you book the truck for? The timeline that it takes your individual mortgage to close varies more than you might think.

Closing Time Lines by Mortgage Type

Conventional mortgages are the most common type of mortgage. They take an average of 57 days to close in 2021, the most recent figures available, according to ICE Mortgage Technology (formerly Ellie Mae, the mortgage applications processor).

Federal Housing Administration (FHA) loans take a bit longer to close due to additional documentation requirements. They take an average of 62 days to close.

U.S. Department of Veterans Affairs (VA) loans have the most complex underwriting requirements and are only available through VA-approved lenders. As a result, they take the longest time to close—an average of 66 days.

Steps of the Closing Process

Once your offer is accepted, there are still several steps to your closing process. You can save a lot of time during closing by choosing your lender, your loan type, and your home inspector in advance. You also will want to get pre-approved with your preferred lender and have all of your documents in order before you ever go under contract. Note: Some of the following steps can be completed out of order or done out of order depending on your lender.

1. Schedule your home inspection right away. Depending on your area, home inspectors may be in high demand and scheduling several weeks out.
2. Authorize a hard credit pull with your lender.
3. Lock your rate. Deciding when to lock your mortgage rate can be difficult, but decide it quickly so that your loan can close on time.
4. Have your lender schedule your appraisal right away. Appraisers are frequently booked out several weeks.
5. Provide documentation to your lender. This will depend on your personal situation, but at a minimum, you should be prepared to submit bank statements, pay stubs, two years of tax returns, a photo ID, and your Social Security card.
6. The home inspection is completed. Negotiate any issues that are found with the seller to your satisfaction and your lender’s.
7. The appraisal is completed. If there is a discrepancy between the appraised amount and the sale amount, you’ll have to cover the difference, secure alternate financing, or negotiate the seller down.
8. Respond to any of your lender’s questions or requests for additional information as quickly as possible.
9. Receive and review your closing disclosure. By law, your lender is required to give you a closing disclosure at least three business days before you close.
10. Close on your new home!