Fairway's Corey Freels uses his personal experience to show why you shouldn't wait to buy a home, even if the market is peaking.
When my wife and I purchased our home, it was the most modest house on the block. Some would call that a savvy purchase decision. In truth, we had no choice. We loved the neighborhood, and all we could afford was a fixer-upper.
But we’ve renovated slowly over the years, and now, we love our house. Better still, the home value has appreciated and we now have substantial equity. And equity is a building block of wealth and financial stability.
I share my story because I know a lot of homebuyers are struggling to find the perfect home in today’s market. But there are a lot of good reasons why you shouldn’t wait to buy a home, even if you’re not able to buy that dream house just yet.
Rising interest rates and rising housing prices have given a lot of people sticker shock. Homes that seemed affordable a year ago may now seem out of reach.
Here’s an example of how much affordability has changed (examples are based on Home.com’s affordability calculator).
A homebuyer with a $70,000 a year income making a $100,000 down payment on a mortgage with a 3% interest rate in March 2021 may have been able to afford a home worth roughly $488,000, with a monthly principal and interest payment of $1,635.
Flash forward to May 2022, and that same borrower – with the same $100,000 down – might receive an interest rate of 5.5%*. Now, they may only qualify for a home worth about $400,000 – $88,000 less – with a higher principal and interest payment of $1,708. They will pay more per month, for substantially less home.
Use our home affordability calculator to estimate your homebuying budget.
*Rates mentioned may not be currently available or available to all customers. Contact us for a personalized rate quote.
I offer this example not to scare buyers, but to motivate them. Yes, the market has been tough. But there are signs that it’s adjusting in favor of homebuyers.
And buying a house now – even one that doesn’t check all of your boxes – will help you avoid future price hikes while you start building equity.
It will also allow you to stabilize your housing payment. Rent can rise, and tenants have little to no control over that. But if you get a fixed-rate mortgage, you lock in the same payment for the life of the loan.
To be clear, I’m not saying you shouldn’t buy your dream house. If you can afford that perfect property right now, good for you! But for many buyers, compromise is the name of the game.
That’s not such a bad thing, though. You can buy a house now, fix it up if needed, and start building equity. As the home’s value grows, so will your opportunities.
You can sell the house for a profit in the future, and use that money to buy your dream home next time. Or you can use the equity to renovate, pay for your children’s education, or purchase a rental property. You might even turn it into a rental when you purchase your next home.
The point is, buying now gives you options, and it’s important to think long-term.
You can buy a house now, fix it up if needed, and start building equity. As the home’s value grows, so will your opportunities.
Buying a house is a personal decision, and circumstances often dictate when is the right time for you to become a homeowner. Because housing prices are high, people may tell you to wait because you’re buying “at the top of the market.” And they might be right – even experts can only make educated predictions about what’s to come.
But guess what? When we bought our home in 2016, we were confident that we were buying at the top of the market and that prices were inflated. Working in the mortgage industry, everyone I worked with and did business with felt the same way! But it was the right time for my wife and me to buy, regardless of market conditions. It was the right house in the right neighborhood, and we were ready. And now I am thankful we didn't wait to buy our home. We may never leave, because we love our home.
So, focus on your buying timeline – not on what everyone else is telling you to do.
If you’ve come to terms with the fact that you may not be able to buy your dream house right now, the next step is to make sure you don’t settle for just any house. Just because you’re not going for all the bells and whistles doesn’t mean you shouldn’t be discerning.
Here are a couple of questions to ask to get some perspective on the property.
Keep in mind that “could I?” doesn’t mean “I must.” You’re not committing yourself to this particular home for 10 years. But you’re deciding whether you could comfortably live there for that long if the circumstances required it.
Like I said, our house was an older property in need of some work when we bought it. And we knew the work would be done over time – as in, four years of time. When we moved in, we had three rooms furnished in the whole house. We didn’t touch our basement for a year until we could start work on it. We bought the house in 2016, and the final bathroom remodel happened in 2020.
So when I say we didn’t buy our dream house, I mean it.
But my wife and I were newlyweds, and we wanted a home where we could start a family. The house we found was in a great location, had 3,200 square feet, and four bedrooms and three baths – plenty of room for us and our future children.
We kept perspective, knowing that the house could meet our core needs for at least the next 10 years, even though it needed some work.
The point is, think of the purchase you make today as a stepping stone. You buy a house now and build up equity that you can then leverage to make the next house your dream home. But make sure it’s going to meet your needs in the meantime. And you never know, you may fall in love with the house after all. We certainly did.
Related reading: Fixer-Upper Loans: How to Pay For That Home That Needs Some Extra Love
I’ve never been much of a budgeter myself, but I do think it’s important to have one when you’re buying a home. You want to see how your mortgage payment might stack up against your rental payment (many people buy houses to reduce and stabilize their housing expenses). And you want to see how the purchase affects other expenses.
For instance, maybe you’re thinking of buying a condo. You’ve paid a monthly gym membership for years, and maybe you’ve even paid for community pool access. But the condo community has an on-site gym and pool that are included in your homeowners association fees. Perhaps you’ve always had to pay for parking because you live in a city, but now parking is included as well.
Buying the condo might not only give you control over your housing payment, it might also free up some cash you can save for a future home or other priorities.
On the other hand, you might find that your current budget is filled with non-essential expenses. You might be motivated to go without some of those so that you can afford a payment on a particularly appealing property.
It’s important to be realistic, though. Swearing off all take-out, entertainment, and streaming services may seem doable when you’re focused on getting a house. But you want to come up with a budget you can commit to, and being realistic will help you figure out exactly how much of a monthly payment you can really afford.
People often ask their lenders, how much house can I afford? But you’re the only one who can answer that. We can tell you technically how much you can afford based on the financial documents you submit. But you know what’s comfortable for you based on your lifestyle, bills, and goals.
And you want to make sure you buy a house that fits within that budget because even the best house can become a burden if you struggle to make the payments.
It can be disappointing to realize you can’t afford to buy your dream home. But remember that that’s a temporary circumstance.
OK, you can’t afford your dream house today. What you can do is buy a house that you can afford, and use that to grow your wealth.
Then, a few years down the road, you may be in a position to buy that forever home. Think of the housing market as a long game – won in many steps, not a single home run.
