Written by: Stephen Spears
Between fierce competition for available housing stock and wildly unpredictable mortgage loan interest rates, navigating the housing market over the last couple of years has been stressful for many potential homebuyers. With high demand and high interest rates, many buyers have faced increased pressure to move faster than they’d like or pay more than they’d like, all for their offer to be considered with no guarantees of acceptance.
Such a high-pressure, high-stakes real estate environment prompts a longing for the days when certain market conditions made it more financially appealing to purchase a home. While 3% mortgage loan interest rates are certainly preferential, it is important to remember that despite market conditions at a specific moment in time, at the end of the day, the best time for a person to purchase a home is when they are ready to purchase a home – especially if they’re a first-time homebuyer.
Understanding your lifestyle needs
Being “ready” to purchase a home means something different to everyone, though feeling financially stable and able to afford and maintain a home that meets your needs is typically the top indicator.
Potential homebuyers should take the time to reflect on what they can afford versus what a mortgage lender will determine they technically qualify for – these numbers will not be the same!
In many cases, what someone technically qualifies for varies from what they can afford, depending on other priorities and financial obligations in their life, like child-related expenses, debt payments, travel plans and more. Taking both indicators into account is important to feeling financially secure during the home buying process, as the amount someone can spend on their monthly mortgage payment is typically different (often, more) than what they may want to spend.
It is also critical to know that the “conventional wisdom” of needing 20% of a home’s price as an initial downpayment is a myth.
Overcoming the barrier of poor credit
One component that prevents many potential homebuyers from feeling ready to purchase a home is their credit score.
There are two main ways that credit affects the homebuying process. It can either disqualify an applicant from purchasing a home through the denial of a home mortgage loan application, or it can significantly increase the costs it takes to finance a home through higher interest rates.
Fortunately, there are ways to navigate this barrier. Potential homebuyers who are concerned about their poor credit score can proactively work with a credit counselor – experts who help people understand their financial situation – to learn how to build it up to a level that will allow them to purchase a home.
Knowledge is key
Regardless of your credit score or budget, seeking more information to fully understand your personal financial situation and mortgage options is what will truly make a potential homebuyer feel ready to set out on their homebuying journey.
A great place to start is a visit to a trusted financial organization that can lend you money for a home. Work with them to first get a mortgage prequalification before you go home shopping. Doing so makes it easier to navigate the moment you fall in love with a house, as you are well-positioned to move quickly and have peace of mind that the place is within your budget.
Potential first-time homebuyers should understand that there are many resources available to become educated in the homebuying process. Taking the time to brush up on the process and learn about the mechanics of mortgages and lending can be greatly empowering to a future homebuyer and can help them avoid commonly cited misinformation – like how lenders that offer the lowest interest rates are the best choice (not true!) or that individuals must keep their mortgage for at least two years (not true!).
As interest rates continue to fluctuate and economists continue making market predictions, potential homebuyers should rest easy knowing that the best time to buy a home is when they feel ready to buy a home. Through honestly assessing their budget, understanding their lifestyle needs, and seeking knowledge, they are sure to find success – and a house they can happily call home.
About the author: Stephen Spears leads Bremer’s Twin Cities community banking team. With nearly 30 years of industry experience, he supports Bremer in meeting its commitment to establish a greater presence in serving BIPOC communities.