Home buyers and sellers have undoubtedly noticed a shift in the housing market over the last few months. An increase in both home price and mortgage rates has whittled down the number of potential buyers, which is having a stabilizing effect on a market that wildly favored sellers. With this shift in the market, many individuals may be wondering: is 2022 a bad year to buy a house? Should you buy a home this year, or wait for the market to cool off?
Will There Be a Housing Crash?
Many of us are still reeling from the Great Recession of 2008, which was largely attributed to the collapse of the housing market. But remember that the housing crisis at that time was caused by several avoidable failures on the part of mortgage lenders. A historically high number of people found themselves able to afford a home, thanks to low interest rates, poor regulation, and subprime mortgage loans that allowed even those with poor credit to secure financing.
Following the housing crisis of 2008, regulations were put in place specifically to avoid such a scenario in the future. Potential buyers must meet strict requirements regarding income and credit, for example.
The spike in home mortgage interest rates should be viewed as a positive for the economy, as a whole. It should also be viewed as temporary. Making it more difficult to buy a home is closing the gap between supply and demand, which will have a stabilizing effect on the market. This stabilization has also been referred to as a “price correction” by many economists.
Once the market has slowed, interest rates are likely to drop once more. Established homeowners will then have the option to refinance, while prospective home buyers might find themselves in a better position to afford a home.
Should I Buy a Home in 2022?
We know two things about the current market: homes are more expensive, and loans are more expensive. Knowing that, the most important thing to consider when shopping for a home is your own, personal readiness. In other words, are you financially and emotionally ready to buy a house?
What You Need to Secure a Home Loan in 2022
You will need to provide pay stubs from the previous two years of your employment. This demonstrates job security and the ability to make future mortgage payments. If you are at all concerned about maintaining your current employment, it is probably not a good time to buy a house.
Moving and buying a house is expensive. You will need cash for a down payment, the sum of which will help determine your final monthly payment. The more you can put down up front, the lower your payment will be.
Your payment will vary depending on where you live, which will also figure in local property taxes and insurance. Again, monthly payments will be higher than two years ago, thanks to the increase in mortgage rates. Be prepared to pay more, even with a good down payment.
In addition to a down payment, you will have various expenses associated with your move. You will need to pay closing costs and realtor fees, as well as other expenses you may or may not foresee (they add up!).
The amount of cash on hand you might need will depend on the house you want to buy and where it is located. It is a good idea to consult with your lender or a financial advisor regarding how much cash you might want to save up prior to a move.
Having good credit is essential in securing a home loan. The better the credit, the better the rates and terms of your loan. Ideally, you want to have a score of at least 740 to get a good loan. You can certainly be approved if your score is less than this, but your rates will go up to mitigate the risk. Strictly speaking, lenders will not consider anyone with a score less than 620.
In addition to your credit, lenders will calculate the amount of debt you owe and divide it by your net income. This is called the Debt-to-Income (DTI) Ratio, and it should ideally be less than 36%.
If your DTI is too high, you may need to pay some of your debts down before you are able to secure a loan. Pay off credit cards first, since the interest rates are higher. Then work on paying down other debts, such as student loans.
Emotional Considerations for Buying a House
Another important but often overlooked step in buying a home is your current state of mind. Owning a home is a big responsibility and entails a certain level of permanence you may or may not be ready for. Ask yourself the following questions:
- Do I plan on staying here for at least three years (enough to build some equity)?
- Do I want the responsibility of maintaining and repairing a house?
- Will this house grow with me and my goals for family, work, etc.?
It is completely normal to feel overwhelmed, even intimidated at the prospect of buying a home. But if you are not completely sure you want to buy a home to begin with, it will be much more stressful. Before you begin the process, get in a headspace where you are 100 percent certain and excited at the prospect of owning your own home.
Ready to Buy a Home in Colorado?
If you are ready to start the home buying process in Colorado, contact Brenda Kellogg Meyers with Exit Realty. As a licensed RealtorⓇ, Brenda has years of buying and selling homes in Colorado. She will help you navigate the current market and find a home that satisfies your personal needs and budget. Call or go online today to get started.