Time after time I get asked, “is it a good time to buy?”
As you begin to ramp up your home search this is a fair place to start. But what you should really be asking yourself is, “is it a good time for me to buy?”
Here are the questions to ask before you make that decision.
#1 Are my finances in order?
You don’t need to have 20% down and perfect credit to qualify for a loan – though it will help get you the best rates and terms. The truth is, there are many loan programs available with as little as 3% down.
Yes, 20% down is preferred. But as a rule of thumb, you should try to have at least 10% available for a down payment. Anything less than 10% makes sellers a bit hesitant to accept your offer.
Your credit score will have a substantial impact on your ability to qualify for a loan and your interest rate. If you’re not already monitoring your credit score, you should. CreditKarma is free and will help you understand how your FICO score works.
Don’t stress if your credit score isn’t hitting that 800 mark. You don’t need an 800+ score to qualify for a loan. But a higher score will get you a better interest rate. There are loan programs for lower scores – it will just cost you more over time. It’s a good idea to shoot for 720 and above.
Reserves and Closing Costs
In addition to your down payment, jumbo loans will require up to 12 months in cash reserves. You can often use retirement savings to satisfy this requirement. High balance conforming loans (loans up to $713k in Ventura County or $726k in LA County as of 2019) won’t require any proof of cash reserves.
Expect closing costs to run about 1-1.5% of the purchase price. Some of these items are one time fees like escrow and loan fees. Others are recurring expenses like pre-paid interest on the loan and the first full year of property insurance.
While that may seem like a big number, much of it is made up of ongoing expenses you’ll be paying each month. For example, if you closed your home on July 18th, your first payment wouldn’t be August 1st, it would be September 1st. Your closing costs included your first payment.
Recommended Targets
Down Payment – 10%-20%
Cash Reserves – 2 months – 12 mos (depending on loan program)
Closing costs – Approx 1-1.5% of the purchase price
Credit score 720+
TIP | It’s never too early to talk to a lender to understand what you qualify for and what you can afford. Plus, you’ll learn what you can do to make you qualify for a better loan. It doesn’t cost you anything nor does it commit you to anyone. (Read: Mortgage Lenders | Who Should I Use?)
#2 Will I become house poor?
Owning a home is a great way to build equity over time, but it’s very important to make sure it doesn’t leave you house poor. In addition to your monthly payment, you’ll want to consider other things like maintenance.
House Poor – a person who spends a large proportion of his or her total income on home ownership, including mortgage payments, property taxes, maintenance, and utilities
At some point, your water heater will need to be replaced, your a/c will get old, your furnace will die, your sink will back up, and other unforeseen issues will arise – hopefully not all at the same time. And let’s not forget the more fun things like remodeling your kitchen, upgrading your bathroom, or adding the hardwood floors you’ve always wanted.
Putting a little money and TLC into your home is part of the deal. You can easily spend 10s of thousands of dollars over time on maintenance and remodeling. It’s nothing to be scared of, just another thing to keep in mind when budgeting and house hunting. This might help:
There’s a big difference between owning and maintaining a single family home vs. a townhome/condo. With a single family home, you’re responsible for your own maintenance including roof repairs & replacement, exterior painting, fences, etc. With a townhome/condo, your HOA dues typically cover the exterior of the building. You technically own the space between the walls. This might knock a bit off your maintenance budget if you’re looking for breathing room.
The benefit is that over time, those costs will be overcome with appreciation and loan reduction when you compare it to renting. But don’t put yourself in a position to never be able to go on vacation, or unable to afford a new car at some point.
TIP | Figure out what your future payment will be once you buy. Subtract your current payment from that number. Start saving the difference between the two now so you’ll get used to making that payment and make sure you can afford it.
#3 Are my expectations realistic?
Once your finances are in order and you decided on a payment you’re comfortable with, it’s time for the fun part – finding a home! In the Conejo Valley, it won’t take long to narrow in on the neighborhoods and houses that you both like and can afford (I can help you with this). For some buyers, the process of finding the right home can take a few months or more. For others, it’s just a matter of weeks.
But, no matter your time frame, make sure your expectations are realistic. Finding a “steal” in the Conejo Valley is fairly unlikely. With so much demand and little inventory, they just don’t exist.
Yes, some homes are a better value than others. And yes, most sellers will negotiate. But on average, most homes sell within a couple percent of asking price. And in many cases, they sell above asking price. Be prepared.
I’ll help you navigate the neighborhoods and available homes. Maybe we’ll get lucky and catch a steal. But if not, we can hone in on your favorite neighborhoods, ideal floor plans, and a budget that will leave some breathing room for renovation. Once you’re prepared both mentally and financially, one day we’ll walk into a house and you’ll feel like you’re home.
Ready to take your home search on the road?
