Should I buy a house now?

It’s no secret that the housing market is hot right now. Still, that hasn’t stopped homebuyers.

Despite rising home prices, low supply, and near-constant bidding wars, Americans are buying homes in record numbers. According to the National Association of Realtors, more homes were bought in 2020 than any year since 2006.

Should you follow suit and buy that dream home now? Or does it make sense to wait until the market has cooled off? Let’s dive in.

In this article (Skip to…)

• Pros of buying now
• Cons of buying inow
• Buying versus renting
• Who should buy in 2021?
• Who should wait?
• Your next steps

It might seem like today’s housing market is all bad news: rising prices, falling affordability, and so on. But there are definitely some perks to buying a house right now.

Low interest rates boost affordability

For one, mortgage rates are low. According to Freddie Mac, interest rates on 30-year loans averaged 2.96% in May 2021. Just two years ago? That average was well over 4%.

Economists expect rates to keep rising this year and next. They could go above 3.25% or even 3.5% by the end of the year.

Say you buy a home worth $400,000. With a 20 percent down payment ($80,000), you have a mortgage loan amount of $320,000.

Here’s how your savings might compare at today’s low mortgage rates versus forecasted rates for late 2021:

The result is a more affordable monthly payment, fewer long-term interest costs, and a bigger home buying budget (or, often, all three).

Rising home values create equity

Buying right now also allows you to take advantage of record-breaking home price growth.

Prices have risen over 15% in the last year, giving homeowners — even newly minted ones — serious profits when they decide to sell. Buying now would give you a chance to capitalize on this growth and really build up your equity fast.

There are plenty of mortgage options

Today’s buyers can choose from a wide range of no- and low-down-payment mortgage options to make home buying more affordable.

Yes, you may have to pay private mortgage insurance (PMI) if you put less than 20 percent down. But that’s not always a bad thing.

Putting less money down can help you buy sooner and benefit from rising home values — rather than waiting to save 20 percent and chasing higher purchase prices later on.

And, it lets you save more of your money for closing costs, home repairs, emergency funds, and other expenses that are sure to come up for a new homeowner.

Unfortunately, according to ATTOM Data Solutions, cash offers account for over a quarter of all home purchases these days. 

But that doesn’t mean mortgage borrowers are out of luck. There are multiple strategies you can use to compete with a cash offer. At the end of the day, the vast majority of buyers still use a home loan — and so can you.

Tougher mortgage standards

Mortgage lenders raised the bar for home buyers during the coronavirus pandemic.

Due to increased financial risks, lenders wanted to see higher credit scores, bigger down payments, and often substantial cash reserves in order to qualify for a mortgage loan. This made it tougher for many first-time home buyers to secure a home loan.

Those standards are beginning to loosen back up as the pandemic wanes. But mortgage still aren’t as easy to come by as they were in early 2020.

On top of that, some sellers are less likely to accept FHA and VA loans these days. So if you plan to use this type of financing, get a rock-solid real estate agent and loan officer on your side to help make sure the deal goes through.

On average, the cost gap between buying and renting is about $600 per month, according to a recent study. In some markets, it’s as high as $1,200.

Moreover, home prices are rising faster, too.

While rents are starting to recover after dropping amid the pandemic, home prices have jumped over 15% in just the last year — much more than the 5% growth rate seen on single-family rental properties.

Of course, this isn’t universal.

The comparison depends on local home prices, location, and the size of the property you’re considering. So make sure you run the numbers in your market before making your decision. A good real estate agent can help here. 

And keep in mind, renting does not offer a return on investment.

While higher mortgage payments make homeownership more expensive, some of that money goes back into your own pocket in the form of home equity. Renting, on the other hand, does not generate any returns for the tenant.

So rather than looking at cost alone, make sure you factor in your long-term financial goals. Will home buying help you get there?

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