Is it the right time to buy a home?
Can I afford to buy a home?
Should I even bother buying a home?
You may have been renting for some time or maybe you are ready for a new home with more space for the family, yet the thought of entering into the real estate market makes you feel a bit overwhelmed. If the above questions have been at the forefront of your mind, we are here to provide you with some local Chattanooga based expert answers! If you don’t see your question below, please feel free to reach out to us so we can assist you, we are more than happy to guide you through the world of real estate!
Is it the right time to buy a home?
So many people find themselves asking this question and worry they will be entering the market at the wrong time. It is understandable. It is 2020 now but the reminders of foreclosure signs and people losing their homes during the 2007 housing crisis are still fresh in the forefronts of our minds. While many people in late 2019 were predicting the climbing of interest rates, in truth the opposite has occurred. As of February 2020, the interest rate for a 30-year fixed rate is around 3.73% down from 3.93% in December 2019. What does this mean for you? Simply put, it means if you can afford to buy a home and find a home you wish to buy, then now is the right time to buy it!
The housing market is incredibly complex and therefore almost impossible to predict. While rates may vary every month and housing prices may increase or decrease, the overall trend is up. Chattanooga specifically is experiencing a unique period of growth while simultaneously dealing with a severe lack of housing inventory. Fewer homes for sale mean prices are only going to continue to climb. Buying now locks in your rate and starts building your home equity. When you are renting a home you are paying someone else’s mortgage and their cost to maintain the home. When it comes to buying a home the old adage “there is no time like the present” couldn’t be truer.
Can I afford to buy a home?
Now that we have established that the best time to buy a home is when you can afford it, the question then becomes, “How do I know if I can afford it?” There is no one answer to this unfortunately but there are a wealth of resources available to you to discover if you can. Some key points you will want to start with when searching for this answer are the following;
- If you are a first time home buyer then you can qualify for help from state programs, tax breaks, and federally backed loans (Note: The U.S. Department of Housing and Urban Development defines this with more nuance than you would think so you may qualify as a first-time buyer even if you’re not new to real estate- check it out here).
- If you have money stowed away for savings, how much of it would you be willing to use for a downpayment?
- What do your monthly costs look like?
- What amount of house do you need for you or your family?
- What is your credit score?
First Time Home Buyer
Maybe you have never owned a home before or maybe you are technically a first-time homeowner according to HUD, regardless of what category you fall under you have more options available to you than the seasoned home buyer. Looking at different types of loans will be essential before deciding whether or not you can afford a home. First-time buyers have programs that can offer you minimum down payments as low as 3% to 5% (versus the conventional 20%) and some don’t require a down payment at all. If you are located in Tennessee you may want to check out THDA loans, Nerd Wallet has a great article laying out some options for you that you will want to check out. If you are located in the Chattanooga area specifically you might want to check out some of the resources provided by Chattanooga Neighborhood Enterprise as well just to see what options you have.
Your down payment will depend both on what loan you use as well as what price point house you want to buy. Keep in mind that just because you are approved for X amount doesn’t mean you have to spend X amount on a home. Before going through the preapproval process have an honest conversation with your finances. Even if you don’t have to put any money down for a home, you will still need to have at least three to six months of living expenses stowed away in addition to possible closing costs, earnest money, and inspection costs. While it is possible to negotiate a large percentage or all of closing costs to be paid by the seller, it is always best to plan for the more expensive path. Most importantly, keep in mind that banks will require you to have this money in an accessible, relatively safe vehicle.
Budget Budget Budget
The good thing about knowing your budget and figuring out what you spend every month is that you are beginning the most valuable habit you can pick up for your financial health. While it may be tedious, keep in mind that this information will be useful long past the purchasing of a home. Account for every expense you can possibly think of, factoring in expenses that are quarterly or yearly as well. This calculation will allow you to see clearly how much you can spend on a home and what you need your mortgage payment to be.
Bedrooms and Baths
Buying a home is obviously one of the biggest purchase decisions many of us will make, so it is important to know what you need to consider to make the right choice. The type of house you choose should reflect both your current reality and your goals for the future. A traditional single-family home, a duplex, a townhouse, a condo, etc offer pros and cons for every individual. The number of bedrooms and bathrooms, as well as the location, will differ based on family size or if there are children that rely on school zones. Knowing what you need from your home will help you understand the amount you will need to spend in order to acquire a house you won’t regret purchasing. Use this information in addition to what you can afford to spend to secure a preapproval.
Obviously the state of your credit score will become very clear to you when you begin to shop around for your pre-approval but don’t let that discourage you. Credit scores are not forever, they can change! While there are now way more opportunities for people to get loans with less than desirable credit, there are also plenty of companies that can help you improve your credit to get a better loan. Check out CCCS of Chattanooga for more information on how you can improve your credit and see what they can offer you in terms of credit counseling.
Maybe you have good to great credit, well the world is your oyster, at least the mortgage world. Regardless of what program you decide to go with, the most important advice we can give you is to shop around. When it comes to finding the best rate and the best program to use, remember that you are your most important advocate and you make the decisions. Make sure to ask for all the fees before seeking a preapproval. Different types of loans can have different fees depending on whether you apply through a local bank, credit union, mortgage banker, large bank, or mortgage broker. Make them compete for your business and get a preapproval from the company that best suits your needs.
In summary, if after all this you see you are unable to get a mortgage you feel confident with paying every month then you can not afford to buy a home… at least right now.
That doesn’t mean this was a waste of time though. The good news is you now are aware of what steps you need to take in order to afford a home. You are then equipped with the knowledge to create a strategy in order to achieve that goal. Don’t be afraid to ask lots of questions in the mortgage shopping process to discover how to improve your situation and remember that there are a ton of resources available to help people plan for homeownership.
Should I even bother buying a home?
You might be thinking our only answer could be yes because… well we are realtors after all. You would be wrong. Obviously, if you have gotten to this point, the desire to buy is present, but ultimately it might not be the right decision for you and that has you worried. Here are some questions to ask yourself to test whether or not planning for homeownership is the right path for you.
- How long do you plan to stay in the home or the area?
- Do you want stability or do you want flexibility?
How Long Are You Staying Here Eh?
If you don’t plan on making Chattanooga your residence for very long then you probably should continue to rent. While the cost of homes is pretty low compared to other cities keep in mind that if you buy here that will take your ability to get first-time buyer homeownership credits and programs away from you in a place where you may want to settle down. Buying to own an investment property that you then rent out when you leave isn’t a bad strategy but it is important to keep tax implications and loan rate changes in mind when making that decision. Maybe you think you would be better off buying and living in the home for a few years and then selling when you leave? Again, there are programs you take away from yourself when you do that and you also can’t ever be certain of what the market will be doing during that time. Staying in your home only for a few years will not build much equity and you may only get a modest profit that when you factor in the initial upfront costs of buying the home, turn out not to be much of a profit at all.
Stability versus Flexibility
Considering that the average rental rate for a home in Chattanooga is about $1,047 and the average mortgage payment is about $1,264, the month to month costs is not the best way to compare. While mortgage payments may vary slightly depending on taxes and insurance, that is also true for rent. While there are maintenance costs to consider, it is important to remember that those costs still apply for rentals, they are just implemented differently. It is also true there is more of an upfront cost to buying a home than renting even when taking into account the background check costs and deposit you are accustomed to making for a rental for comparison (and can only hope you will see back). However, what many don’t consider is the cost of moving, relocating every few years, and spending time finding a new place that will work. When you account for all these things, the price ends up being a wash.
The real difference comes down to stability or flexibility. If you have children you might want the stability of knowing you are rooted in the zone they attend school at. There is also the peace of mind in knowing the general amount you will be paying monthly from now until 30 years from now and that eventually those monthly payments will only be taxes and insurance. There is also stability in knowing that you are building an asset that you can pass down and that whatever changes you would like to make are within your power.
However, stability means you lack flexibility. Renting allows you to be more mobile. If you don’t want a home to root you to an area or you like to go on long vacations, renting can be more ideal for you. In that case the cost of owning a home just isn’t worth it in the long run and that is perfectly fine.
Regardless of what path you take, it is your choice to make. You know best what your goals are and what you want your expenses to be. Going into the real estate market with open eyes and a clear head will help you alleviate a bit of the stress associated with making a large financial decision. Whether you want to continue renting or you are looking to buy, know the Mark Hite Team is on your side!