
The best time to buy a home can come down to several personal factors, such as your financial situation and your needs, but it can depend on some external factors as well. Seasonality plays a part, with some times of year are better to buy than others. You might be best off taking a deep breath and waiting for a different time of year, even if all your personal signals are shouting, “Go!” It can mean the difference between a long, aggravating search when fewer homes are on the market or your purchase offer being snapped up before you can blink.
Are You Financially Ready to Buy?
First, about those personal factors: your debt ratio, your savings, your income and job security. You need a track record with handling debt and handling it well to get approved for a mortgage. Your debt-to-income (DTI) ratio shouldn’t be more than 43 percent at the most, and it should be lower. This is your monthly debt payments (credit cards, student loans, personal loans, and car payments) divided by your gross monthly earnings before taxes are deducted from your pay.
Read More: Healthy Debt-to-Income Ratio
Another percentage to consider is how much of your net income after taxes can go toward your mortgage payment. Dave Ramsey suggests that this should be no more than 25 percent. Your payment should be $1,500 or less if you take home $6,000 a month. Remember, you’ll have to pay a few other home-related expenses over and above this, including utilities and maintenance, although things like property taxes and homeowners insurance will most likely be included in your mortgage payment. Zillow indicates that these expenses can run an additional $9,080 a year.
And you should ideally have sufficient savings to handle a 20 percent down payment, plus closing costs, without depleting your emergency savings. You might be able to get away with putting as little as a 3.5 percent down, or even a little less depending on the type of mortgage you take out, but anything short of 20 percent will most likely result in having to pay private mortgage insurance, which will add to that monthly mortgage payment. Closing costs average anywhere from 2 to 5 percent of the amount of your mortgage loan.
Read More: What Credit Score Do I Need to Buy a House?
What’s Your Lifestyle?
Buying a home is probably a good idea if you and your spouse just had a baby and your family is growing. You want to plant yourself somewhere and give your child a secure upbringing. You’ll probably be staying in your new home for quite a while. On the flip side, you might be single, fond of traveling, or work in a career that might require relocating at some point in time. Maybe homeownership isn’t really for you even if all of your financial stars align.
Three is the magic number here. Zillow recommends knowing that you’ll be staying in your new home for at least three years to make a home purchase cost-effective. Job security matters, too, because buying a home is supposed to be a long-term commitment. Most mortgage lenders want to know that your current income will remain largely unchanged for at least three years as well.
Read More: Am I Ready to Buy a House?
In the end, the best time to buy your dream home comes down to your goals, your finances, and the economic climate.
The Best Times of Year to Buy
Okay, you’ve crossed all these issues off your must-accomplish list, and you’re personally ready to move forward. Look out your current window. What’s the weather like out there?
Some months are more conducive to homebuying than others. Late summer and early fall – think August and September – tend to see dropping home prices spread out over a good many available properties for sale. But this is just the beginning of a cycle.
You can probably expect that home prices will continue falling through the winter months and holidays. Dave Ramsey indicates that the lowest median home price in 2019 occurred in January. Prices typically begin dropping in the fall and plummet in December. February typically sees some low prices as well.
The flip side is that the housing market probably won’t be bountiful at this time. Homeowners are less likely to put their properties up for sale during the holiday season or in the dead of winter, so you might not have a lot to choose from. But those who have listed their homes might be a wee bit desperate to sell and willing to negotiate a lesser purchase price.
Read More: Is Now a Good Time to Buy a House?
The Not-So-Best Months
Higher home prices usually prevail through spring and into early summer, and you’ll have more competition from other homebuyers during these months as well. Homeowners are likely to have multiple offers on the table to choose from during these months. You’ll probably want to make your best possible offer up front, because negotiating might be out of the question.
April traditionally sees the most new listings, according to Zillow, which can be good if you really want to shop around, but you’ll likely pay higher prices.
The Effect of the Economy
All this assumes that the economy is chugging along normally – there’s no frightening recession and the market isn’t sky-high expensive, either. A lagging or surging economy can affect your homebuying odds as well.
You might have the most secure job in the world, but there’s a greater chance that you’ll find yourself unexpectedly out of work during a recession or an economic crisis period, such as the ongoing coronavirus pandemic. But home prices could drop, too, so this could be a good thing if you’re sure you’re going to continue to be gainfully employed.
It’s not unheard of for interest rates to drop during these times as well, and a mortgage will cost you less over the life of the loan if you buy while mortgage rates are at rock bottom. That may mean you can afford to pay more for a new home than you initially thought you could. That might be a good thing because, conversely, home prices can actually rise when interest rates drop.
Read More: Advantages & Disadvantages of Interest Rates
Rates are more or less hinged to the Federal Reserve’s rate, and the Fed has historically lowered rates in response to tough economic times, like the fallout from the 2020-2021 pandemic. In fact, the Fed has indicated that it expects interest rates to remain at rock bottom through 2023, so you might consider refinancing to take advantage of this if you buy at the wrong time.
Then There’s the Market
All of these factors can vary somewhat depending on the local market where you’re thinking of buying. Some areas are more resistant to national trends than others. “Hot” and in-demand locations might have ample inventory and higher listing prices even in December, and they’re generally more competitive all year long.
But this doesn’t have to be prohibitive to buying. Any reputable real estate agent can tell you exactly what’s going on in their neck of the woods, and there are a few things you can be alert for as well. You might be able to buy just before a location trends to hot because you noticed that a handful of new restaurants or stores are opening, or there's a higher than usual number of new homes being built. These are key indicators that an area is gaining in popularity, so you might see some significant and relatively immediate appreciation in your investment if you buy now.
In the end, the best time to buy your dream home comes down to your goals, your finances, and the economic climate.
References
- Dave Ramsey: When Is the Best Time to Buy a House?
- Rocket Mortgage: The Best Time of Year to Buy a House
- Quicken Loans: When Is the Best Time to Buy a House? A Complete Breakdown
- Zillow: When Is the Best Time to Buy a House?
- The Mortgage Reports: Is Now a Good Time to Buy a House? What Homebuyers in 2021 Should Know
- Experian: When Is the Best Time to Buy a House?
- Debt.org: Good Debt vs. Bad Debt
- Consumer Financial Protection Bureau: Explore Interest Rates
- Consumer Financial Protection Bureau: What Is Private Mortgage Insurance?
Writer Bio
Beverly Bird has been writing professionally for over 30 years. She is also a paralegal, specializing in areas of personal finance, bankruptcy and estate law. She writes as the tax expert for The Balance.