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More than 85% of Americans recently agreed that it’s not a great time to buy a home. And that mentality is showing up in sluggish home sales, as a combo of high prices and interest rates keeps people frozen in place.

But what does that mean for you? Not a whole lot. If you don’t need to move right now or care much when you eventually do, then sure – you might want to wait for more inventory or lower rates. But how many people are neutral about whether and when they move or not? Not many. To figure out if it’s a good time, look at your situation.

4 questions to ask yourself

If you can say “yes” to these questions, then this may be a good time to buy a home.

Are your critical financial needs already covered?

“Think of financial security as building a pyramid,” says Ken Murray, Executive Director, Financial Planning at 91��̳ Engines. “The foundation of that pyramid is the things that will keep you safe.”

Basic needs you should prioritize include:

• Emergency savings. Have at least six to 24 months of expenses saved up.
• Insurance. At a minimum, you need enough medical, auto (if applicable), disability and renter’s insurance. You may also need life insurance and an umbrella policy, depending on your circumstances.

“When your foundation is solid, the next level is retirement savings,” says Murray. “You should be steadily increasing the amount you’re saving, with a goal of getting up to your employer plan maximum.”

If the bottom two levels of your pyramid are covered, you’re ready to move on to the next level, Murray says. It includes the other goals that are personally important to you – buying a house, saving for college or other dreams.

Can you afford the house you want?

One way to figure out if a house is affordable is to look at the ratio of your payments to your monthly income.��

“Your ‘front ratio’ is your housing cost – principal, interest, taxes and insurance, plus any HOA fees – calculated as a percentage of your gross monthly income, and it should be 28% or less,” Murray says.��He adds that if you have good credit, a lender might approve you for a larger loan, but that doesn’t mean you should agree to it.

Of course, if you’re already a homeowner, you know buying a house isn’t just about choosing an affordable monthly mortgage payment, either. You’ll need:

• A 20% down payment. You can certainly get a mortgage with less, but we usually don’t recommend it because you can quickly wind up underwater if your house loses value.��Putting down less than 20% also means you’ll probably need to pay private mortgage insurance.
• Money for closing costs. There are a lot of fees associated with buying a house: loan fees, insurance and tax prepayments, appraisal costs, title search and recording fees and more.��Closing costs average 3%-4% of the home price, according to the Department of Housing and Urban Development. And starting in mid 2024, buyers may also have to pay real estate agent commissions or other compensation for the homes they buy (more on that below).
• Excess cash flow for maintenance and repairs. When you go from renting to owning, this can blindside you. Think of all the things your landlord may have dealt with on your behalf in the past: no hot water, a broken dishwasher, a leak in the roof, a mouse infestation, lawn mowing … these are now all your responsibility, and costs can add up. It’s generally recommended you set aside at least 1% of your home value annually for maintenance and repairs.
• Room for your payment to grow. You may not realize that in a fixed mortgage, only the principal and interest (the PI in PITI, an acronym often used to refer to the components of mortgage payments) are fixed. Taxes and insurance (the TI) can and will generally go up over time. The good news is that most people see their income increase over time as well.

Are you going to hang around?

Don’t buy a home if you’re not planning to stay in it for at least five to seven years. Closing costs (both to buy and sell it later) are expensive, and short-term market dips can make it difficult to move if your house isn’t worth what you owe on it. It’s smarter to rent if you suspect you might need to relocate or want to upsize in the next few years, or if you’re moving to a new area and aren’t 100% sure you’ll like living there.

Do you even want to own a house?

People often think of buying a house as a “must do” financial goal like retirement, or a life milestone like getting married and having kids. But like other milestones, they’re not requirements. There are valid reasons you might not want to buy a house, like an unwillingness to be locked into place or to spend time and money maintaining a home. Don’t buy a house without thinking through all the implications.

While owning vs. renting can save you money over the long run, it’s not strictly a financial decision.

And two things that don’t matter:

Interest rates

You may be shocked to hear from your financial planner that interest rates don’t matter much to your decision (assuming you can afford the payments at current rates), but here’s why.

• They’re not actually as high as they feel. Mortgage rates started falling in 2008 during the global financial crisis, and they’ve only recently gone back near long-term averages. The 7% rate they’ve been hovering around is pretty moderate. While rates might come down a percentage point or two in the future, sub-4% rates are probably over.
• You can refinance later. Locking in a fixed mortgage at today’s rates only means the rate can’t get higher. But you can still lower it later by refinancing if rates drop. (And if interest rates go in the other direction – which is not out of the question – you’ll be glad you got today’s rate.)

Housing prices

Again, while prices are much higher than they were a few years ago, you can set that aside when deciding whether now is the right time for you to buy.

• Most experts agree there’s not much room for prices to fall significantly, given the ongoing shortage of housing in the U.S. In fact, some think that falling interest rates will push prices even higher by causing buyers to flood the market. (That said, real estate trends are ultimately local and there are differences in regional patterns.)
• Any future market-wide gains or losses will be reflected in your next home purchase. If houses fall in value, your next home will be cheaper. If they go up, your next house will be more expensive.

Buying a house isn’t about getting a good investment – you’re looking for a place to live.

If you do move ahead with buying:

Get a 30-year fixed mortgage

Buying in cash and getting rid of a mortgage may feel like a better financial decision when interest rates are higher, but it ties up assets that you could use to meet other financial goals or deal with unexpected expenses or income loss. Which isn’t necessary – you can live in the house and benefit from any value increases with a mortgage just the same as you could if you owned the house outright.

“The money decisions you make with your house aren’t a one-off,” says Murray. “They’re part of your overall financial plan and strategies. Getting a mortgage gives you additional liquidity and safety that’s usually worth the (tax-deductible) interest you pay, and we generally believe that you should take full advantage of it.”

Beware of adjustable-rate mortgages. You’re taking a risk that you’ll either be able to refinance or sell when the rate resets, but nobody knows the future. If you do go with an ARM, choose one that resets several years after you plan to sell the house, just in case, and talk to your financial planner about whether the risk is worth the lower initial rate.

Don’t buy points

Don’t buy points when interest rates are higher and expected to drop. You may end up refinancing after a few years to a lower rate, and the money you used to pay for the points will be gone.

Find the right representation

In the past, in many states, real estate agents legally represented the seller by default. To have someone representing your best interests instead of the seller’s, you’d have to sign a specific agreement with that agent (they’d typically still be paid by the seller, though).

However, a lawsuit settlement with the National Association of Realtors earlier this year has called that model into question. If the settlement is approved as expected, homebuyers may have to pay the agents they hire themselves beginning this summer.

As a buyer responsible for paying your agent, remember that you can shop around, negotiate compensation and consider asking the seller to cover your agent’s fee.

At this point, it’s unclear what other changes may be coming to the real estate industry as a result of the settlement (as well as lawsuits that are still pending and a Department of Justice investigation). So, make sure to ask whose interests your agent is representing and how they’ll be paid, and read documents carefully before you sign.

We’re here to help you decide

Let your planner know if you’re thinking of buying or selling a home. We can help you understand how it affects your overall financial picture and give you personalized guidance for your situation.

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