Nov. 10, 2023
Many potential homebuyers have pressed the pause button when it comes to buying a home. Before inflation and high interest rates, mortgage rates were around 3% … now they can be as high as 8%, the highest rate in 20 years.
But there might be good news on the horizon: It's looking like rates will go down in 2024. They probably won't go back down to those historic lows of 2020 and 2021, but once rates do fall, many homebuyers may get off the fence and buy.
But should you rush to make a home purchase just because rates have fallen? There are many things to consider when it comes to buying a home, not just the interest rate or the mortgage payment.
Here are three signs you shouldn't rush to buy a home even if interest rates fall.
1. You aren't sure you will be able to stay in the home for 5 years
If you cannot stay in the home for at least five years, you will probably take a hit financially when you sell. The way mortgages are structured, you pay much more interest in the first few years you own a house. Usually, it isn't until you are about five years into paying down your mortgage that you've made enough progress on the principal to make money or even break even when you sell.
2. You're buying because it feels like everyone else is
I can identify with this. When I bought my condo, everyone was racing to buy a home to finish checking off boxes on their list of what success looks like. Luckily, I bought a condo, not a house, and the purchase price was well under what I was pre-approved for. (And fun fact: Now I rent, and I prefer it.)
Really take a look at your finances and lifestyle and ask yourself if right now is the best time to buy a home. Do you travel a lot for work, are you up for a promotion in another city, or do you have lingering credit card debt to pay down? Then this may not be the best time to buy a home.
There is more to owning a home than the interest rate. Rates could be 0%, but if a home doesn't fit into your budget or lifestyle right now, it just doesn't.
3. You are stretching to be able to afford the home
If it is taking everything you have to get to the closing table, it might be better to wait to buy a home. If you are wiped out after the down payment and closing costs, think about if that is where you want to be, financially. Being house poor is a real thing.
If your credit is not the best right now and that is resulting in a higher interest rate, maybe wait six months to a year and work on your credit score so you can be in the position to get the best interest rate possible.
Even though buying a home may be the American dream, attempting to buy a home in the middle of building an emergency fund, paying off credit card debt, or being unsettled in your career or location does not make financial sense — regardless of the interest rate.
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