Buying a house is a big step. It’s a long-term commitment and most likely the biggest financial transaction you will ever make. Knowing when to buy a house isn’t always easy. You don’t want to throw away money on rent, but you also want to make sure you keep your financial situation secure. Happy young couple using a laptop - woman is leaning over man's shoulder looking at the screen

The First Step: Are Your Finances in Order?

To start, you need to look at your finances. How much do you bring in every month, and how much do you spend? Start with a budget so you know where your money is going. In general, most lenders look for a Debt-to-Income ratio of 43%. This means you can take your monthly gross income, multiply by 0.43, and that will give you the number that you can pay toward all your debt – including your mortgage. Once you get your number, subtract your current debt payments (student loans, car loans, credit card minimums), and the number you are left with is what you can use as the target for your monthly mortgage payment. However, this doesn’t mean if you have no debt that you can use the entire 43%. Lenders want your housing payment to stay around 28% of your monthly income. This provides a safety net and gives you some wiggle room if necessary.

Can You Afford a Down Payment?

While it’s possible to buy a home with a low – or even no – down payment, you will need to have a chunk of accessible cash ready for your home purchase. Ideally, you will be able to put down 20% of the purchase price, as that will help you avoid adding PMI (private mortgage insurance) into your monthly payments. The more you put down, the smaller your mortgage payments will be, and with a bigger down payment you may be eligible for better terms. Some lenders look for a minimum of 5-10% down to qualify for the most favorable mortgages. While you should budget for a down payment and closing costs, it is important that you don’t completely sacrifice your savings. Home ownership comes with maintenance, upkeep, and repairs, and you will need to be financially prepared for the unexpected.

Is it a Good Time to Buy a House?

The housing market plays a role in when to buy a house, but your situation also comes into the equation. If you have the finances in order and need to buy a house, then it’s a good time to buy a house regardless of the market. If you’re keeping an eye on interest rates, consider buying the house and refinancing later if interest rates go down. If your current living situation is good and you’d like to save more for a down payment and work on paying off debt, then do that.

The point is, it’s never going to be the perfect time to buy a house, so if you can afford to do it, it might be time to leap!

Buying a home in California doesn’t need to be stressful. A successful, local real estate agent can guide you toward making the right home purchase for your future. If you’ve been working hard to be in the position to buy a house, contact Amberwood Real Estate today to set up some house showings. We are experts in this housing market, and we can help you find a great house for a great price.