When's The ‘Right’ Time to Buy a House? Take The Homebuyer Readiness Quiz
Buying a house is no easy decision.
You get conflicting information everywhere. But the biggest variable is the future. How do you make a good decision when you don’t know what will happen tomorrow?
It’s not possible to account for every scenario. But you can confidently decide whether you’re ready to buy a house.
You should base your decision on whether you are ready. Not because someone says home prices or rates will be lower in a year. “Experts” are notoriously wrong about these things.
The fact that you are ready is more important than whether it’s a good time in the market. Buying a home is not like buying a stock.
So here’s how to better know whether it’s the right time for you to buy a home.
See if you can be pre-approved to buy a house.
Take the Test
Honestly examine each heading and decide whether you agree or disagree. Tally up the stated points for each “Yes” answer, then we’ll translate those scores into your homebuyer readiness.
The result could indicate whether you’re ready to buy a house or if you might consider waiting. Of course, the final decision is up to you. These are only general guidelines.
You Plan To Stay In The Area For Five Or More Years: 5 Points
When you buy a house, you are likely locked into a geographic location for at least a few years. Yes, you can always sell and move, but it’s prohibitively expensive – about 10% of the home’s value. Your entire down payment could disappear by selling the home. Renting the home out would be at a loss, most likely. So if you plan to move for work or tire of a single location easily, it’s best to rent.
You Won’t Outgrow the Home Too Quickly: 5 Points
Speaking of staying in the home longer, you want to buy a home that will be adequate for five years or more. Buying a home that you outgrow in a year or two could cost more than not buying. Strike a balance between buying your dream home and one with a more affordable payment.
You Are Solidly Employed: 10 Points
This one seems obvious, but worth mentioning. You should be solidly employed, hopefully in an in-demand industry. Ideally, you are a vital contributor and it would cause severe pain for your employer to lose you. It’s OK to be self-employed, but you should be able to show two years of post-expense income on filed tax returns and viable business for the foreseeable future.
You Created a Budget Around the New Payment: 5 Points
The first step is to form a budget around your current expenses, but you need to go one step further. Create a new budget around future expenses:
Principal and interest
Property taxes
Homeowner’s insurance
HOA dues
Increased utilities
Home maintenance and repairs
Account for the higher expenses of homeownership. You may consider reducing your maximum home price to leave more room in the budget.
You’ve Been Good About Paying Rent and Bills: 10 Points
Unfortunately, you don’t magically become a better financial manager because you buy a home. Keeping up on bills will become harder. You should only buy a home if you pay rent on time and keep up with less significant obligations. This is why lenders examine credit history. An ongoing disregard for smaller bills almost always translates to late mortgage payments later.
You Could Make The Payment for 6 Months With No Job: 5 Points
Anyone can get laid off with no warning. That’s why it’s good to create a backup plan with which you can cover other expenses for six months. Your strategy should go well beyond an emergency fund, although it’s smart to have one in place.
Open an emergency HELOC on the house
Build relationships and create a personal brand in your industry so you can quickly pick up contract work
Research alternative income sources like Uber and Doordash so you can sign up quickly upon losing your income
Be open to selling a car to eliminate the payment
Get a loan against your 401k or investment portfolio
Be creative. You’d be surprised at how you could make money in a pinch.
Your Income Prospects Are Improving: 5 Points
Those who are young in their careers have a lot of room to grow. Buying a house may be a stretch now, but becomes more affordable as your income grows. Your housing costs eventually use up a smaller percentage of your income.
You’re OK Giving Up Some Luxuries: 5 Points
Buying a house involves making sacrifices, especially in high-cost areas where home prices have outpaced incomes. It’s OK to sacrifice some luxuries to build home equity and lock in housing costs. Each homebuyer should decide on their tolerance for cutting expenses.
Other Expenses Won’t Increase: 5 Points
Young homebuyers are more likely than older ones to have new or increasing expenses.
Student loans coming out of deferment or on income-based plans
A car that needs to be replaced
Plans to have a child, resulting in one less income or high daycare expenses
Examine your life trajectory and make sure your budget can handle any expected cost increases.
You’re Not Timing the Market: 5 Points
You never know if it’s a good time to buy a house until much later – five or 10 years from now. It’s unwise to either rush or wait to buy a home if you're trying to capture prime market conditions. For example, someone who purchased in Q1 2006 saw home prices fall almost 16% by Q1 2009, according to the U.S. Census Bureau. Fast forward to 2024, and those same homeowners have seen a 68% increase from their "inflated" 2006 price – one of the worst times in history to buy. If mid-2000s buyers come out that well, you’re very likely to do better.
Scores: 60 Points Possible
Tally your scores and see how you did. Remember, this is by no means a scientific test or predictive of your success as a homeowner, simply a general guide based on overarching principles.
40-60: You’ve made plans and backup plans, calculated your risk, and shown you’re responsible with smaller obligations. You’re probably ready to buy a home.
20-40: You may be ready to buy, but it’s worth double-checking your situation. It could be worth waiting to build savings or a more solid income.
0-20: It doesn’t sound like you’re ready yet, but examine your situation. Plenty of people have purchased homes even though they didn’t look “ready” on paper.
Ready to Buy a Home? Start Now
There’s no better time to buy a home than right now – if you’re ready.
Find a lender to see how much home you can buy.
