House Buying Advice: When Is the Right Time to Buy a New Home?
Deciding on when is the right time to buy a new home in Calgary NE, NW or Airdrie depends on several different factors. Taking the plunge and going from a renter to an owner depends on what is best for you, and the timing can be different for everyone. Before you start shopping for homes, looking at floor plans, and spending time at viewings, you will want to first make sure you are prepared financially.
Financial Factors to Buying a Home
Buying a home is all about having your finances in order. You should not make any major purchases while you are preparing to buy a home. Major purchases include buying a new car, investing in a timeshare, or other such transactions that could impact your ability to get approved for a mortgage.
Set Aside a Down Payment
Lenders will want to verify you have a down payment set aside. They want to see you personally invest in the home you want to purchase. The amount of down payment you require will vary, based on the type of loan programs you qualify for and can range from as little as five percent to as much as twenty percent of the purchase price.
For instance, new homes in Calgary NE, NW or Airdrie could have prices that easily start in the $400s (four-hundred thousands). This means you would need anywhere from $20,000 to $80,000 as a down payment.
Putting together a down payment can take several years. You may want to downsize to a smaller apartment to save money on rent and have more to save up for your down payment. You should also make it a habit to set aside any windfalls, like bonuses and raises, to grow your down payment faster.
Review Your Credit History
Your credit history influences your ability to get approved for a mortgage. Even if you have a sizable down payment, you could still be denied if your credit is very bad. Prior to applying for home loans, you will want to review your credit report and obtain your credit score.
Reviewing your credit profile can help you determine if there are inaccuracies you need to get fixed. You may also discover collection accounts or other derogatory items you did not know about.
If there are mistakes on your credit profile, it is better to get them corrected before applying for a mortgage. Removing inaccurate reporting will help improve your credit score and help secure you a better interest rate. It can take, on average, about three months before errors are removed and you see a change in your credit score.
With poor-credit problems, you want to take steps to resolve collection accounts and get into the habit of paying debts on time. It takes about a year to see noticeable improvements to your credit score after taking steps to correct prior credit problems.
However, that does not mean you always have to wait to buy a home. Just keep in mind, if you have bad credit, lenders will charge a higher interest rate because they are taking a bigger risk. If you have the time to wait a year, it is often better to do so.
How Much Home Can You Afford?
Another financial factor to evaluate is how much home you can easily afford. One of the biggest mistakes renters make is assuming they can afford to pay what they are now paying for rent for a mortgage. What they forget is that there are added costs to owning a home, including:
- Property Insurance
- Property Taxes
- Homeowner Association Dues
- General Upkeep and Maintenance Expenses
Each of these additional expenses will cut into the amount you currently pay in rent. Rather, it is better to sit down and make a list of all monthly debts and expenses, not counting your rent payment. Once you have this amount, subtract it from your monthly take-home income (after taxes).
This will let you know how much disposable income you have left each month that could be used for a house payment. While this can be helpful, you also need to know your debt-to-income ratio, as this is what most lenders use as part of the loan approval processes.
Most lenders want this ratio to be around thirty percent or less. Although, if you have one slightly higher, and under forty-five percent, it is still possible to get approved for a home loan. To calculate the debt-to-income ratio, take your total monthly debts and divide it by your total monthly income.
For example, your total monthly debts are $3,000, and your total monthly income is $10,000. You would divide $3,000 by $10,000 and get 0.30. Next, multiply this by 100 to get 30, which means you have a 30 percent debt-to-income ratio.
- TIP: Some lenders will look at your gross income (before tax deductions) and use this to determine if you fall within their debt-to-income ratio. Even though they do this, it is better for you personally and financially to use your take-home income to calculate your debt-to-income ratio.
- Bonus TIP: Subtract out the cost of your rent from your total monthly expenses when calculating your debt-to-income ratio. If you purchase a home, you will no longer have this monthly expense.
Once you have determined you are financially able and ready to start shopping for new homes in Calgary NE, NW or Airdrie you need to know the various market conditions. The real estate market is constantly changing, much like the stock markets. Prices can go up, go down, or remain unchanged.
Two common real estate terms you need to be familiar with are “buyer’s market” and “seller’s market.” A buyer’s market is when there are more homes for sale on the market than buyers. In other words, the supply of houses far exceeds the demand.
In this type of market condition, you can get great deals on houses because sellers are motivated to sell. They will accept lower prices for their homes just to sell them. A good indication of buyer’s market conditions is when the majority of homes for sale are remaining on the market for six months or longer.
In a seller’s market, the conditions are reversed, where there are more buyers looking for homes than what is currently available for sale. In other words, the demand for houses exceeds the supply of houses.
In this type of market condition, it is not uncommon to get into bidding wars with other buyers over a single property. Homes can and do sell for prices higher than their actual listing prices. A good indication of seller’s market conditions is when the majority of homes for sale are only on the market for a month or two.
Time of Year
The time of year is another factor that can help you decide when it is the right time to buy a new home. As you might have already guessed, spring and summer are peak periods for real estate transactions. Yet, the spring selling season in real estate begins in January.
You will notice an increase in the number of homes being listed on the market starting in January after the holidays, and this continues to increase through the end of summer. While shopping for a home during this time can present access to a wider range of properties, you could also find yourself in a bidding war with other prospective buyers.
Unless you have specific reasons you need to buy a home in the spring or summer, you are better off waiting until later September to start shopping. Come late September, the real estate market slows down.
You will notice fewer properties being listed during this time, with the least amount in December. However, if you can find a home you like in the fall and early winter, you will have fewer buyers to compete with over the property. In some cases, you could even walk away with a deal, as most sellers are motivated and are willing to accept lower prices.
To Buy an Existing Home or Build One?
Another question you need to answer is whether you want to purchase a home from an existing owner or build your own new home in Calgary NE, NW or Airdrie. Building a home can be a fun and exciting process since you have some input into its design and décor. Plus, everything will be brand new, and you will be the first person to live in the home.
Building a home can also be beneficial in seller’s market conditions. You don’t have to compete over a listing nor worry about paying more than the seller’s asking price. Instead, the builder typically has several subdivisions in development, and you merely select which one you want to build your home in and choose one of the available lots.
Builders may also offer to show homes for sale that are model homes they built and used for viewings. While you do not get to pick and choose design elements, builders tend to be motivated to sell show homes, so you could get a great deal on the sales price.
As you can see, deciding when is the right time to buy a home depends on numerous factors, but in the end, it comes down to your own personal needs and whether you are financially ready. To check out our current inventories of new homes in Calgary NE, NW or Airdrie or to see what options are available for building your own custom home, please feel free to contact Genesis Builders Group at (403) 265-8079 today!