Many prospective buyers are concerned about the interest rates, where the market is headed, and whether they’ll be paying too much for a house if they buy right now. While that last sentence may sound very fitting for today’s market, the reality is, buyers are almost always concerned about those three things.
That’s not to say those concerns aren’t valid right now, because the market is shifting in many areas of the country. But if buyers are holding their breath for the market to shift entirely in their favor, they might not see the price drops they’re simultaneously hoping for (to get a better deal) and fearing will happen (if they pull the trigger and buy a house now.) There’s no crystal ball to predict either scenario, nor can you control how it plays out.
What you can control is your ability to comfortably afford the house you buy—whether you buy one now or wait it out.
No matter what the market is like, it’s always important to get pre-approved for a mortgage before you start looking at houses. It’ll give you a firm grasp on how much a lender will allow you to borrow, and help you to focus on houses you know you can purchase. But just because a bank approves you for a certain amount, doesn’t mean you should spend the entire amount they’ve approved.
A lot of buyers think that if a lender approves them for a certain amount, they can comfortably afford the monthly payments. In theory, that’s true. A lender shouldn’t (and probably wouldn’t) approve you for an amount you can’t afford to pay on a monthly and long-term basis. So they’re most likely confident you can afford to pay the principal, interest, taxes and insurance (PITI), on a monthly basis.
However, not all mortgage lenders or reps are created equal. Some will truly take the time to make sure you understand how much the loan will cost on a monthly basis, and they’ll help you determine whether that fits in with your lifestyle. Others…not so much; they just pump out a pre-approval and send you on your merry way to spend as much as you want up to that amount.
Your lender will likely consider the bigger picture of your expenses, but they can’t and won’t know your day-to-day lifestyle unless you broach the topic. So make sure you ask your lender or mortgage rep to help you analyze how much your actual mortgage payment will be on a monthly basis, not just how much you are approved to spend on a house, and consider whether that fits in with how you like to live. Think about what you need to (and just like to) spend money on each month, besides your housing:
- How much are your car payments?
- How much do you spend on groceries?
- Do you like going out to eat a certain amount of times per month?
- Do you like to travel?
- Are you saving for, or paying off college tuition?
Will you need to cut back on some things, or will you be able to continue the lifestyle you’re used to?
As long as you know how much your monthly payment is, and you’re comfortable with it, you can truly feel better about buying a house in this market, or any other market. If you can afford it on a monthly, ongoing basis, it doesn’t matter if house prices drop for a period of time, or if your interest rate isn’t as low as it might’ve been if you bought a year ago. If house prices drop, just don’t sell it until prices bounce back above what you bought it for, which they historically do over the long term. If interest rates drop, refinance and get yourself a lower rate and payment down the road.
Real estate prices can go down. They don’t constantly appreciate and go up. There are dips in the market. So it’s natural for buyers to be concerned about buying and then seeing the prices drop.
Historically, though, home values ultimately go up over time. So it’s a sound investment no matter what the market is like when you do buy, as long as you can afford it on a monthly basis and don’t sell when the market values are down.
So, make sure to not only pay attention to the amount you’re pre-approved to purchase a house for, but (more importantly) the amount of your monthly payment. If you can comfortably afford to pay it each month, you’ll be fine no matter what the market is like.