Should you buy a home right now? What you need to know about getting a mortgage now that rates are increasing
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Owning a home is a goal many people have. But given rising costs and increasing interest rates, you may be wondering if it’s better to pump the brakes on your plans to purchase a home right now.
According to Jeff Ostrowski, a senior mortgage reporter at Bankrate.com, the current economic climate doesn’t mean your home-buying plans need to be on hold. Yes, rising interest rates will impact the home you can afford to buy. And yes, interest rates have gone up from the record lows of 2020 and 2021. That said, rates have steadied at 5-6% for now, which is still pretty low.
Ostrowski also adds that interest rates really shouldn’t be the driving factor when you’re deciding whether or not the time is right for you to buy a home. Instead, your decision to buy a home should be based on your personal needs and finances. “The question should really be, ‘Are you ready to buy now?'” Ostrowski says.
When it comes to readiness, these are the factors to consider when deciding if you’re ready to buy a home:
Credit Score: “Your credit score is the most important factor if you’re going to be financing your purchase,” Ostrowski says. Most lenders require a credit score of 740 or higher to qualify for the lowest interest rates available. If your credit is in the low 700s or even the 600s, Ostrowski says making credit card and loan payments on time, not carrying a balance on your lines of credit and reducing your credit utilization are all ways to improve your credit score.
Job Stability: In order to be approved for a mortgage, your lender will want to see proof that you have enough income to cover the monthly principal and interest payments, but also that it’s stable and reliable. This can be tricky for people who are self-employed or who are gig workers, but not impossible. If this is your situation, Ostrowski says you should be prepared to have a slightly higher interest rate or look outside the more mainstream mortgage options to qualify for a loan.
Down Payment: While 20% down is the gold standard when it comes to buying a home, Ostrowski says potential buyers shouldn’t be deterred if they have less than that saved. “It is possible to buy a house without a 20% down payment,” Ostrowski explains. “You can get a house for as little as 3% or 3.5% down.” If you have some money for a down payment, your financial situation is secure, and you can truly afford the cost of the home each month, then there’s no need to avoid buying a property right now.
Emergency Fund: Let’s be clear about one thing: Do not clean out your savings to buy a home. While you should certainly have some money saved for a down payment, you’ll want to ensure you still have a cash cushion in the bank to cover emergencies, repairs and more once you’ve purchased your home.
If you check all the boxes above, then there’s no reason to delay purchasing a home right now.
Ready to start the home buying process? Ostrowski urges buyers to compare mortgages to ensure they get the best possible terms. “You should definitely shop around because there’s so much variability from one loan offer to the next,” Ostrowski says. A recent report found that buyers could save thousands of dollars over the life of their mortgage simply by comparing three or more offers. So take advantage of the online mortgage tools and calculators at Bankrate.com to ensure you’re proceeding with the best possible offer.
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