Is Now the Time to Buy a House?

With interest rates at record lows and home prices still depressed across much of the country, now seems like the perfect time to enter the housing market. For most people (but not everyone) it is. For the right buyer, there are deals to be had and the sub-4% mortgage rates make buying very attractive. However, before visiting open houses, there are some things to consider.

Mortgage rates are at historical lows, but not everyone –- perhaps not even most people –- can get them. Banks are not quite as strict as they were even a few months ago, but it takes good, if not great, credit to qualify for them. If your credit is less-than-stellar, you may still qualify for a loan, but the rates won't be quite as low. That said, a 4.5% or even a 6% mortgage is still historically pretty amazing, but, before buyers grab whatever rate they can get, there are other things to consider.

With mortgage rates likely to stay low for the foreseeable future, buyers should consider whether they can raise their credit enough in the next 6-12 months to qualify for the best possible mortgage loan. If, for example, they are carrying high balances on their credit cards, paying them down might be prioritized as a way to improve credit scores. In some cases, simply paying bills on time can markedly improve credit scores.

Just because one lender said no, does not mean that all of them will. Some buyers may have struck out with a traditional bank, but feel they are close to qualifying. In that case, it may be best to try an alternate source of funding like a credit union. In many cases, credit unions are more lenient than traditional banks.

For those just starting out, in many cases qualifying for the best mortgage rates can be done by having a more established older relative co-sign the loan. Of course, asking for a co-sign is asking for a major commitment as they are obligated to pay in the event of a default. However, parents co-signing for their children is not uncommon.

For buyers looking at the upper-end of the housing market, there are great deals to be had. In many cases, though, the bottom and middle of the market has already bounced back and supply is tight -- driving prices back up. The best way to determine if you can buy what you want at an advantageous price is to work with a licensed Realtor. A good Realtor should consider your list of requirements and be able to show you what is available that meets your needs at what costs. A Realtor can also show you historical sales data for similar homes, which should show you if you're really getting a deal. Due to the housing market crash, many markets are in tight supply on certain types of homes. For example, single-family new construction may be in short supply as builders either sat on the sidelines or built multi-family homes, condos or other types of homes more suited for the down market.

Another problem caused by the housing market crash is that home appraisers -– who used to be very generous in setting values for homes -– have now gone entirely in the other direction. In many cases a buyer and seller will agree on a price that appears to be supported by Realtor-provided comparative sales –- only to have the appraisal come in well below the sales price. If this happens, a buyer can either add to his down payment to bridge the gap or, the buyer and seller can negotiate a lower price. With appraisals being generally low across the board, a buyer with a large down payment has extra leverage with sellers as having that extra cash makes the deal less likely to fall through. Most home sale contracts contain a mortgage contingency. Basically, the contingency says that if the buyer can't get a mortgage, the whole deal is off (sometimes with a deposit being forfeited, other times not).

While mortgage rates are likely to stay low for the next year or longer, prices on homes have largely stabilized and are likely to increase in many markets. So, if you meet the above criteria, it is likely time to buy a home. There are still deals to be had and in many parts of the country, there are highly motivated sellers with properties that have been on the market for a long time.