You know you should buy a home. Eventually. But timing matters when it comes to such an enormous and potentially life-changing purchase. Which begs the question: When is the best time to buy a house? Does such a moment exist when all lights turn green, guaranteeing this is a decision you won’t regret?
While there’s no crystal ball in real estate, there are some fairly easy-to-read signs that a home purchase is something you should consider. Let’s dive into some of the factors that can influence whether the time is right for you to pull the trigger.
For many people, knowing when to buy a home all comes down to the numbers. Here are the biggest pieces of that equation.
You have a down payment: If you need a mortgage to buy a home, you should know that most lenders will want you to show them the money—that is, have a sizable down payment. For most conventional loans, you’ll need to scrape together 20% of a home’s price, or $60,000 on a $300,000 home. Amassing that cash can be challenging, but know that some lenders can require as little as 5% down. You also may want to check into down payment assistance programs; many homeowners are surprised to find that they qualify.
You can afford a monthly mortgage: How much you can afford in monthly mortgage hinges on your income and debts. Higher income is good, of course; higher debt is bad. Check out a mortgage calculator for an easy way to plug in your salary and debts to see how much home you can afford in your area.
You have a good credit score: Your credit score is a measure of how well you’ve paid off past debts. Lenders look at this number to prognosticate how well you’ll pay them back, too. If you have no credit history, you should get some fast (lenders will want to see at least a year of payments under your belt). If your credit score is poor, you may want to do what you can to bring it up to snuff, because a higher credit score means you’ll stand to land a better loan.
Housing markets go through highs, lows, and bubbles—much like stocks. As such, you may be wondering whether current market conditions are conducive to buying (e.g., “Wow, you can buy a whole townhouse for under two hundred grand?”) or a total rip-off (e.g., “a two-bedroom for a half-million, seriously?!”).
Sadly, the adage for stocks applies to housing, too: It’s impossible to perfectly time the market. Yet there is still something to be said for considering economic conditions.
“You should never buy a home you can’t afford, but sometimes market conditions offer a little incentive to get off the sidelines,” says Mark Abdel, a real estate professional with Re/Max Advantage Plus in Minneapolis–St. Paul.
You’ll want to consider the following:
Inventory: Look through listings for your area. If the majority of houses have been sitting on the market for more than six months, then the market is slow and prices should be OK. But if many properties get snapped up in months, or even weeks, this suggests you’re in a seller’s market—and that’s where buyer bidding wars could drive up prices. Of course, they could just continue to climb, or they may have peaked and go down. Local real estate agents can give you the lay of the land and their predictions, but just remember it’s anyone’s guess what could happen next.
Interest rates: Interest rates on home loans also fluctuate depending on market conditions. Currently interest rates are fairly low but have been inching up fast, which has many thinking of buying a home before they rise even higher. Make sure to check out interest rates in your area.
Renting vs. buying: A final factor to consider is whether it’s cheaper to own or rent, based on the market conditions in your area. You can figure that out with our rent vs. buy calculator.
Does time of year matter?
Conventional wisdom says to buy during the peak seasons of spring and summer, when there may be more options. But that also translates into more competition and potentially higher prices. That’s why you shouldn’t neglect fall and winter for home shopping, especially if the other conditions above line up.
“Buying off-season usually gives buyers more negotiating power for both the price and the closing date,” Abdel says, because off-season sellers are often more motivated to sell and therefore may be more willing to make a deal.
How long should you stay put?
Last but not least, one final factor to consider regarding when to buy a house is whether you plan to stick around. Buying a home carries a bunch of upfront costs, so it’s generally best you don’t sell soon after you’ve closed the deal. Typically home buyers should expect to stay in their house at least five years to make this investment worthwhile.
The joys of home-ownership are many: Your own house is a place to make sweet memories, build a financial nest egg, and whittle down your tax bill. Wait, what? Yep, it’s true: Your home can save you a bundle on April 15.
We’ve rounded up every last way to take advantage of the tax benefits of owning a home. Read on for the full rundown just to make sure you aren’t missing any, then pat yourself on the back for all the moolah you’ll save!
Tax write-off No. 1: Your mortgage interest
This is the biggie tax benefit of owning a home: the ability to deduct the mortgage interest you pay over the course of a year. And the more recent your mortgage, the greater your tax savings.
“The way mortgage payments are amortized, the first payments are almost all interest—so that’s why the mortgage interest deduction is worth the most in the first few years of the loan,” says Wendy Connick, owner of Connick Financial Solutions. (See how your loan amortizes and how much you’re paying in interest with this mortgage calculator.)
Here’s how this deduction looks for a married couple in the 28% tax bracket (that means a joint annual income between $151,201 and $230,450) who bought a home with a $300,000, 30-year mortgage at a 4% interest rate. They will pay $11,904 in mortgage interest their first year. Once you add in the other itemized federal deductions below, these homeowners can expect to save at least $3,333 in taxes during their initial year of ownership.
Tax write-off No. 2: Your property taxes
Generally, your property taxes are deductible on your tax return, says Brian Ashcraft, director of compliance at Liberty Tax Service. And that could be a hefty savings. According to the U.S. Census Bureau, the average household property tax is $2,127. If you have a mortgage, your taxes are built into your monthly payment.
You can also pay property taxes early and write off the entire expense if you’re staring down a large tax bill for any given year. Just note that you must claim the deduction in the year you wrote the check. For example, if you paid your 2017 property tax in 2016, claim that tax benefit on your 2016 return. Here’s more info on how to calculate property taxes.
Tax write-off No. 3: Private mortgage insurance
If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan. But Uncle Sam’s willing to give you a tax break here by allowing you to deduct this amount from your income, too.
How much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut taxable income by $1,500.
Note: The deduction is due to expire this year, says Connick. “Unless Congress renews it, the deduction will not be available for the 2017 tax year.”
Tax write-off No. 4: Energy-efficiency upgrades
Don’t miss out on tax credits for any “green” updates you’ve done to your home in the past year, says Michael Banks, founder of FortunateInvestor.com. The Renewable Energy Efficiency Property Credit allows you to claim a credit for up to 30% of the cost of equipment you purchased that uses renewable energy sources (e.g., solar panels and wind turbines).
Other home upgrades like new HVAC systems, energy-efficient windows, and storm doors can also earn a tax credit of up to $500. For example, if you installed central air conditioning, you can claim a $300 credit. This credit for residential energy-efficiency improvements expired at the end of 2016, so hopefully you made these improvements last year. If not, there’s still time for solar panels, since this credit runs through 2019.
Tax write-off No. 5: A home office
If you work from home, your office space and expenses can be deducted from your income, too. According to Vincenzo Villamena, managing partner of Online Taxman, you can take a $5-per-square-foot deduction for up to 300 square feet of office space, which amounts to a maximum deduction of $1,500. Understand, however, that there are strict rules on what constitutes a dedicated, fully deductible home office space. Your accountant can lead you through it.
Tax write-off No. 6: Home improvements to age in place
Many older homeowners plan to stay put and age in place—and if that entails renovations such as wheelchair ramps or grab bars in slippery bathrooms, the cost of these improvements for you, a spouse, or dependent results in a nice tax break, says Jayson Mullin, owner of Top Tax Defenders.
“You can deduct the amount by which the cost of the improvements exceeds the increase in your home’s value,” says Mullin. To break that down, let’s say the cost of installing a ramp totals $10,000 and increases your home’s value by $7,000. Then the allowable deduction would equal $3,000.
Just remember, these “aging in place” deductions must cost more than 10% of your adjusted gross income. So if your AGI is $60,000, there’s no deduction for the first $6,000 of medical home improvement expenses. But if you’re 65 and older, the expense must exceed only 7.5% of your AGI.
Tax write-off No. 7: Interest on a home equity line of credit
If you’ve tapped into your home equity by taking out a home equity line of credit, or HELOC, the interest you pay on the loan is also deductible provided you use this money to pay for home improvements or repairs.
How much you’ll save depends on the amount borrowed, but let’s crunch some sample numbers: If you take out a four-year $20,000 HELOC at 4%, you’ll have an $800 deductible that will save you about $205 in the first year of your loan. Use this calculator to see how much you’ll save.
Posted on March 1, 2017 at 1:19 am
Contrary to some predictions, Millennials are making owning a home a priority. While they’re buying their first home a bit later than prior generations, they’re embracing the long-term value that home ownership brings.
1) Millennials are dominating the first-time homebuyer category today.
With more people competing for fewer homes, it can be frustrating to be a home buyer. Here are some tips that can help you gain an advantage and get a home that you love.
1) Get ready to compromise. Separate your needs from your wants.
In a competitive market, most buyers will have to compromise on location, amenities or condition of the home. Make a list of your must-haves and features you’d like (but can live without), and prepare to be flexible.
2) Get pre-approved for a mortgage.
With many buyers now offering cash, it’s critical to get pre-approved for a mortgage before you start looking at homes. If financing is needed, sellers prefer conventional loans to FHA or VA loans.
3) Be ready to move fast.
With homes selling within days – or even hours – you can’t afford to wait on a decision. If you see a house you like, be ready to act on it that day.
4) Work with an agent who is a great negotiator.
Your agent needs to do much more than just write up an offer. A good negotiator can find out what terms are most important to the seller, and write an offer (and maybe additional counter-offers) that best meet their needs.
5) Find creative ways to make your offer more appealing.
Every seller has their own wish list. It may be a large earnest money payment, or they may want to stay in the home a few months after the sale. A savvy agent can use that knowledge to sweeten your offer and give you an advantage over other potential buyers.
You don’t want to navigate this frenzied market without the best possible representation. Contact a Windermere broker to help you get the home you want at a price you can afford.
Posted on May 15, 2016 at 7:38 pm
Did you know that 43 percent of home sales are over list price and almost always involve multiple offer situations? In fact, buyers working with a Windermere Real Estate broker are 19 percent more likely to win the sale in these situations.* Our brokers work tirelessly to make sure that not only do you have the best representation in the pool of offers, but that yours stands out to the seller.
Here’s Why Our Windermere Brokers Are Most Successful…
Windermere Real Estate brokers help position their buyer’s offer to have the greatest appeal to the seller. They also receive extensive training on how to create the most competitive offer and negotiate successfully in home sales over list price and potential multiple offer situations. Our brokers regularly receive the highest real estate education to stay ahead of real estate strategies, regulations, and everything else that helps make your offer the winning one.
Additionally, at the end of the day, it’s about reputation. Brokers are more confident in completing a transaction with a broker from Windermere than they are with any other real estate company.**
If you’re thinking about purchasing a home on the Eastside, make sure you have a Windermere Real Estate agent on your side. Almost half of our local real estate sales are sales over list price and multiple offer situations, and you want to make sure you’re represented by the best.
*Based on single family home sales in King County that closed above list price in 2015. New construction, condominiums and short sales were excluded.
**Based on a 2015 independent study of NWMLS brokers who closed six or more transactions in the previous year.
Updated on 2/16/16 to include all single family home sales in King County that closed above list price in 2015.
Posted on May 15, 2016 at 7:35 pm
All of the latest statistics are pointing to a seller’s advantage right now. But are there still benefits for buyers in this market? Absolutely.
Some potential home buyers may be hesitant to start their home search with extremely low inventory and high home prices in the Puget Sound region. While home prices have been increasing year-over-year, so have monthly payments for new buyers.
This is when you ask yourself: What is the cost of waiting to buy?
Between March 2015 and March 2016, the median home price on the Eastside increased $106,886. While the mortgage rate dropped slightly, the monthly payment increased $462 tacking on an extra $5,544 per year! How much more can it increase between now and March of 2017?
If you want to wait, just remember how much more you could spend per month if you hold off until next year to buy a home. Take advantage of these low rates and payments; get in touch with your real estate broker to help you navigate our housing market and find your new home.
Posted on May 3, 2016 at 10:10 pm