Be careful if any of these cases apply to you.
- You may be looking forward to buying a home this year, before mortgage rates rise.
- You will need to make sure your finances are stable before taking this leap.
There are many good reasons for owning a home rather than renting one, such as the opportunity to accumulate equity in an asset that could appreciate in value over time. If you’ve been a homeowner for a while now, you may be eager to buy in 2022.
Mortgage rates have been at or near record lows since mid-2020, but in early 2022 they started to climb. You may be eager to buy a home before rates rise even further. But while that logic makes sense, if these situations apply to you, it’s a sign that you might want to put off homeownership.
1. You already have a lot of debt
Owning a home means taking on a monthly mortgage payment, among other expenses. And so, if you already have a lot of debt to pay off, you might want to wait until some of it is reduced. Not only could your existing debt make it harder to meet your mortgage, but if you have too much debt relative to your income, you could be denied a home loan.
2. Your credit score needs serious work
It is possible to get a mortgage with bad credit. But in this case, you may be limited to an FHA loan, which has certain restrictions and inconveniences (like having to pay ongoing mortgage insurance premiums). If your credit score isn’t great, it may be a sign that you’re having trouble managing your bills and debts. It might be beneficial not to add another expense to the mix until you are in a safer place.
3. You become independent
Many people have quit their salaried jobs and become self-employed during the pandemic. It could be a wonderful career move for you. But it can also mean moving from a stable income to a variable income and/or taking a pay cut until you increase your workload. As such, you might want to hold off on buying a house until you’ve settled into your freelancing routine for a good six months or more. This way, you may have a better idea of your income, which will help you determine the price of the house you can afford.
4. You lack funds for a down payment
You don’t necessarily need a 20% down payment to buy a house. Some conventional mortgage lenders will let you deposit less, but if you go that route, you will be charged for private mortgage insurance, which will increase your costs. Likewise, you can get an FHA loan with as little as 3.5% down payment, but then you’ll have to deal with the ongoing mortgage insurance premiums we talked about earlier. You may want to wait until you have more money on hand before buying a home.
As keen as you are to buy a home in 2022, especially before mortgage rates spike, it’s important to do so under the right circumstances. If any of these signs apply to you, you might be better off just sitting around and waiting to buy.
A Historic Opportunity to Save Potentially Thousands of Dollars on Your Mortgage
Chances are interest rates won’t stay at multi-decade lows much longer. That’s why it’s crucial to act today, whether you want to refinance and lower your mortgage payments or are ready to pull the trigger on buying a new home.
Ascent’s in-house mortgage expert recommends this company find a low rate – and in fact, he’s used them himself to refi (twice!). Click here to learn more and see your rate. While this does not influence our product opinions, we do receive compensation from partners whose offers appear here. We are by your side, always. See The Ascent’s full announcer disclosure here.