First Time Home Buyer Series: Is Now the “Right” Time To Buy? Understanding Your Situation

In a previous post, I dived into the market conditions that would help you understand whether now was the “right” time to buy or not.

At the end of the day though, it all comes down to what your individual situation is, so let’s take a look at some of the key factors to consider when making this large and important life decision.

How to Know if Now is the “Right” Time for you to Buy

Q: Do I plan on staying in this area/neighborhood for the next 5-10 years?

Why It Matters: Long-term housing price inflation aside, it is a lot of work to look for a home and go through the purchase process, not to mention expensive. If you’re not planning on living there for 5-10 years, you may want to re-think whether now is the right time to buy or not.

Q: If I wanted or needed to change jobs, how feasible would it be for me to do so while maintaining my current income level?

Why It Matters: If your home purchase only makes sense with your income increasing over time and receiving of an annual incentive bonus, it may not be sustainable if things go south, like they did for so many people during the Great Recession. My advice is be conservative and “hope for the best, but plan for the worst.” If the next most likely job that you could get is lower pay, plan around that. Not the rosy scenario. Besides, it isn’t smart to have all of your eggs in one basket. So diversify outside of your primary residence which isn’t an asset while you’re living in it for most people.

Q: Do I have enough savings for an Emergency Fund and the up-front expenses (downpayment, closing costs etc) of owning a home?

Why It Matters: You want to be in a position of financial strength and stability when purchasing a home. If life throws you a curve ball, or you have some unexpected home repairs required that you weren’t planning for, if you overextend yourself you risk losing your home and much of your life’s savings. Sometimes it’s better to go slow and steady and move forward when you’re ready to vs. rushing for FOMO (fear of missing out).

Q: What percentage of pre-tax dollars would the planned cost of home ownership represent for me? How does that compare with my current cost of housing?

Why It Matters: This factors into whether you will be approved for a loan based on your debt-to-income ratio (more on that and tools to help you understand what you can afford here), but it is also important for you to know how much of your income housing will take up (also factoring in maintenance, home insurance, HOA etc).

In combination with the other questions above, it should help give you a picture as to whether it makes more sense to buy or rent for the time being.

At the end of the day, only you can decide if the timing is right for you or not, but hopefully between looking at market conditions and your own personal situation, the answer will be clear.