Often when we ask when the right time is to take out a mortgage, we’re thinking about interest rates rising and falling or the Federal Reserve and the state of the economy.
But despite what the banks tell us, your readiness to take on a full home mortgage is significantly more important than a point on the economic landscape. A fraction of a percentage between April and July won’t save you nearly as much money as entering your mortgage agreement prepared.
Keep reading to learn how to ready yourself financially for a mortgage and save thousands of dollars in the long term.
1. The bigger your down payment, the better.
If you’ve saved up a large 20 percent down payment, then the time may be right for a mortgage.
A significant down payment means a lower interest rate, freedom to negotiate with financial institutions and the money you’ll save on expensive private mortgage insurance (PMI). PMI can cost about $100 per month on a basic $200,000 mortgage, costing you thousands in just a few years.
2. Clean credit equals a better interest rate.
You may want to own a house now. However, waiting a year or two to work on rebuilding and improving your credit can significantly reduce your interest rate, open options to better lenders and save you a lot of money over the course of a 30-year mortgage.
3. Do you understand your true total cost?
Home ownership is a lot more than writing monthly mortgage checks. There are bills to pay, roofs to fix, furnaces to run and property taxes to consider. Before you jump into home ownership blindly, make sure you fully understand all the costs associated with your potential new home.
4. Are you expecting any major life changes?
If you’ve been talking about moving or there have been murmurs of layoffs at work, then right now may not be the best time to start investigating a new mortgage.
When planning a return to school or expecting a new baby, you also need to factor these life events into your decision. The best time to buy a home is when you’re stable, secure and ready to take on a long-term financial commitment.
5. Have you compared the cost of ownership versus the cost of renting?
If renting in your area is cheap, then it may make more financial sense to continue renting and invest the money you would otherwise put into home equity or a down payment.
Depending on the cost of rent and the return on your long-term investments, you could actually save more money than if you bought a home. Before you buy, do the comparison.
