Owning your own home has long been part of the American dream. It's a goal most of us rightfully aspire to, and one that can often help build wealth. Indeed, 64% of Americans own a home today. If you're considering buying a house, you'll want to look at a few things first, such as your overall financial picture and the total cost of home ownership. You'll also want to understand current interest rates and home market prices.
We've all heard the rule of thumb that you should ideally have 20% of the purchase price saved for a down payment on a home. Although you can qualify for FHA mortgage loans with as little as 3.5% down, a 20% down payment is still a much better idea, because you won't need to pay private mortgage insurance, will have lower monthly mortgage payments, and will pay less interest over the life of the loan. You'll also be less likely to end up underwater on your mortgage should housing values decline.
So, one way of gauging when it's the ideal time to buy a home is when you can afford a 20% down payment on the home of your choice. But wait — you'll also need to factor in other costs, such as insurance, closing costs, moving costs, repair and maintenance, property taxes, and so forth. Use a mortgage and housing cost calculator to determine whether you can still afford your home when all these costs are combined.
Another rule of thumb: Are you depleting all your savings with the down payment? If you'll have no emergency savings left, or if you need to liquidate retirement accounts, then you should likely continue saving until your overall financial situation can accommodate the major expense of home ownership.
You'll also want to assess interest rate offers: Mortgage rates have been historically low for years now, but even so, you'll qualify for the lowest rates only if your credit is good, above a 720, or so. The best time to buy a home, according to this rule of thumb, is when your credit score is strong, and you have access to the lowest rates. Work on paying down debt and improving your credit score in order to receive the best interest rate offers from lenders.
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And finally, deciding when it's the best time to buy a house also rests on how long you envision yourself in the home. If you can foresee needing to move within a few years, consider the costs involved in selling the home and moving, which may erode any gains. If you are planning on growing your family, downsizing, or otherwise significantly altering your life circumstances (including slowing down in your career, or retiring), you might also find yourself seeking a new housing situation sooner, so plan your purchase accordingly.
In short, the best time to buy a house is when you have enough saved for a down payment such that your overall financial condition won't suffer after the purchase; when your credit score is strong and you'll qualify for the lowest rate; and when property market conditions in your area reflect realistic pricing. And don't forget to consider how long you intend on living in the home, as this may affect your finances, too.
Happy house hunting!
—By Janet Alvarez, financial journalist, CNBC + Acorns Contributor
CHECK OUT: 3 simple ways to save an extra $200 every month via Grow with Acorns+CNBC.
Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.
