;
 

Should I Buy Now, or Wait Until the Market Cools Down?


A magnifying lens on a newspaper with paper houses.

Today’s hot housing market has become one of the most discussed topics of this year and is one of the many oddities of the pandemic. In addition to the already low housing supply before COVID-19, it was further impacted by the lockdown. People began looking for new homes for a multitude of reasons, including the desire to move out of popular cities, to benefit from better home offices, or just to avoid missing out on owning a house.


The market is so hot that over half of all homes are selling for over asking price right now, resulting in a median sale price about 16% higher than the same time last year!


The housing market is still hot, but there are signs that it's starting to cool off. According to a report from Zillow on September 16th, housing inventory has started to recover significantly in some markets. With more houses on the market, buyers have more options, as well as less competition per house. A cooling-off doesn’t mean that home prices will come down but we anticipate that price year over year home price growth will get back to a more reasonable and sustainable number.


Is Now a Good Time To Buy a Home in California?

Due to low mortgage rates in 2020, homeownership became more affordable and appealing. If you didn't purchase a home in 2020, is 2021 a good time to purchase a house?

Couple unpacking near an "our first home" welcome mat.

Here are five signs that buying a house makes sense:

1. You have stable employment

You may be ready to purchase a home if you've held your job for at least two years.


Home loan lenders want reassurance that you have enough money coming in to cover the cost of the mortgage and will continue to do so throughout the loan term. That proof comes in the form of stable employment history.


Typically, lenders will request your last two years' W-2s to verify your employment history. Alternatively, if you are self-employed, be prepared to present your two most recent tax returns. You will also need to provide any 1099s you received during that time.


2. You are in control of your debt

You might be ready to buy a house if your debt-to-income ratio (DTI) is less than or equal to 45%.


The next factor a lender will consider is your DTI. Your debt-to-income ratio is a measurement of how likely you are to be able to repay another loan based on your current debt obligations and your monthly income.


Lenders today look for a DTI ratio that's less than or equal to 45%. You may want to consider getting a better handle on your debt before you jump into the real estate market if your DTI is higher than that.

DTI TIP: Add up all your monthly debt payments, including credit card bills, car payments, and student loans, to determine your DTI. Divide that number by your total monthly income and multiply it by 100 to get your percentage.

○ (Total monthly payment ÷ monthly income) x 100 = DTI


3. You have a good amount of savings

If you've saved over 5% of the price of a home in your price range, you may be ready to buy a house.


In addition to making sure that you have enough money to cover your mortgage payment each month, your lender will also want to verify that you have a sufficient amount of savings to shoulder the upfront costs of buying a home. You should also make sure you have enough cash to pay for:

Down payment: In general, you should have 20% saved up for your down payment (although there are cases where you might need less).

Closing costs: Closing costs include any fees required to close on a house. They usually amount to an additional 2% to 5% of the home's purchase price and are split between the buyer and seller.

Reserves: The funds you have left over after paying your down payment and closing costs are your reserves. Your account balance should be enough to cover at least two months of mortgage payments—but a larger buffer than that might be a good idea.


4. You have a decent credit score

If your credit score is over 500, you might be ready to buy a house.


The final financial component that lenders consider before giving you a mortgage pre-approval is your credit score. The exact score you’ll need to be approved will depend on the type of loan that you’re considering. As a rule of thumb, getting approved for a conventional loan will require a credit score of at least 620. However, it’s possible to be approved for an FHA loan, which is a program used by many first-time homebuyers, with a score as low as 500.


That being said, it would be in your best interest to improve your credit score as much as possible before you start looking for a home. Borrowers with excellent credit scores tend to get better interest rates than their counterparts.


5. The market is in your favor

If mortgage rates are going down, it’s probably a good time to buy a house.


Beyond the strength of your financial profile, you should also take market conditions into account when deciding on the best time for you to buy. In particular, you should take a look at current interest rates. When mortgage rates are low or trending downward, you’ll pay less overall when you borrow money.


You’ll also want to consider whether your area is currently in a buyer’s or seller’s market. Qualified real estate agents can help you make that determination, but as the name suggests, you’re hoping for a buyer’s market. During buyer’s markets, there is generally more inventory for prospective buyers to choose from, which makes sellers more willing to negotiate on price.


Start looking

Are you a first-time homebuyer unsure where to start? The McLellan Team is here to help you navigate the home buying process to avoid any bumps and pitfalls that could occur along the way. Our goal is to get you the best possible mortgage option at the best rate—and the quickest financing possible—giving you the edge when faced with a multiple offer scenario.


Get started today and call McLellan Team at 949-669-1100, email info@mclellanteam.com, or request a callback on our website.