So youâre at the point in your life where buying a home is not a question of if, but when. Youâre scrimping. Youâre saving. Youâre dreaming of walking through the front door of your very own home.
But as the decision draws near, you start questioning everything. Is now a good time to buy a house? Or is this the worst time? Is it more financially responsible to buy a house right now or wait? And what if you mistime the market, buying too soon or too late, and miss out on lower home prices?
Ultimately, the experts say the answer is less about economies, markets and pandemics and more about you.
So, how do you think through this decision? Youâll want to take time to thoroughly review your personal financial situation and life goals. At the same time, youâll need to gain some understanding of the market dynamics that impact home costs.
This process will take some time, but itâs well worth the effort. With a firm grasp on your personal situation and some context on the housing market, youâll be able to confidently go forth knowing youâre making a fiscally informed decision about whether to buy a house right now.
Honestly assess these aspects of your finances
Financial security is always important if youâre trying to determine when youâre ready to buy a home. To decide if now is a good time to buy a house, ask yourself the following questions about your finances:
How secure is your income?
Job or income stability is an important factor if you are buying a home in a rocky economy, such as the one triggered by the coronavirus pandemic, says real estate economist Gay Cororaton. Even in a robust economy, your income security should be top of mind when youâre thinking of buying a house right now.
If you have any inkling that your position may be eliminated or that youâll be making a career change, you may want to delay buying a home. Even a recent break in employment that caused you to draw down some of your savings may raise a red flag with lenders, says Kate Ziegler, a real estate agent with Arborview Realty in the Boston area.
If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home.
Do you have enough money saved?
After income stability, savings is the next-most-important financial factor youâll want to consider to determine if now is a good time to buy a house, Ziegler says. The old rule of thumb was to save 20% of the price of the home for your down payment. While that is ideal, itâs not necessaryâfar from it, Ziegler says. In fact, it has become more common for first-time buyers to put down much less than 20%.
How much house can you afford?
The down payment is one side of the affordability coin. Your monthly mortgage payment is the other side. You need to know how much you can spend on both to determine if you can afford to buy a house right now, says Jeff Tucker, a senior economist at Zillow. Aim for a monthly mortgage payment that doesnât stretch you too thinâexperts typically put this at around 28% of your monthly gross income, according to Bankrate.
With those guidelines, you can determine what you can afford. For example, if you make $4,000 a month, you should typically spend no more than $1,120 on your monthly mortgage payment in total.
How much house that buys you depends on multiple factors: mortgage rates, property tax rates, homeowners insurance andâif you donât have the savings to put down 20%âprimary mortgage insurance, or PMI. To get a rough estimate, plug your income details into an online calculator. For a more specific figure, talk to a local lender and get pre-approved for a mortgage, Ziegler says.
Once you know your price range, you can determine how much savings you need in the bank to buy a house right now. Youâll also need to have money saved for closing costs, which vary but typically run 2% to 5% of the loan amount, according to Bankrate.
Again, Ziegler recommends talking to a lender to really understand what your individual down payment and closing costs would be. Finally, be sure to add a line item in your budget for home maintenance that will inevitably pop up after you move in. Whether itâs a dishwasher on the fritz or a leaky roof, you donât want to be caught off guard, so be sure to save money for emergency home repairs.
How is your credit?
Your credit profile is also important to lenders, and it will likely be a factor in what interest rate youâre offered. Given that, you should be checking your credit report and know your credit score before investing in a home. If youâre considering buying a house right now, you should avoid opening any new lines of credit right before purchasing a home, Tucker says.
What is your debt-to-income ratio?
Another factor lenders check is your debt-to-income ratio, or DTI, Tucker says. This is the percentage of your gross monthly income that goes to paying monthly debt payments, plus your new mortgage. Lenders typically require this ratio to be 45% or less but prefer it even lowerâin the 33% to 36% range.
Another financial consideration when deciding if now is a good time to buy a house is the opportunity cost of delaying a home purchase, Ziegler says. If youâre renting in a market where the rent is higher than your would-be monthly mortgage payment, you may be spending a lot more money each month than if you were to purchase a home. And of course, with a mortgage, your monthly payment increases your equity.
After taking a clear-eyed look at your income, savings and these other financial factors, you will have a better sense of when youâre ready to buy a home and whether nowâs the time for you to dip into the market.
Consider key market factors
Next, take a look at factors that are outside of your control, but still influence your purchase: prices, interest rates and national employment trends.
Where are housing prices?
As youâre looking at the market, one of the biggest considerations when you are ready to buy a home will be housing prices and availability. Research your local market by talking to real estate agents who work specifically in the area where you want to buy and asking them about market trends, Ziegler says.
Track current listings and recently sold prices to get a sense of how prices look today. Generally, the tighter the inventoryâmeaning the fewer houses availableâthe higher prices will be, Tucker says.
Whatâs going on with interest rates?
When youâre ready to buy a home could also depend on another major economic factor: interest rates. When interest rates are low, your housing budget is effectively supercharged, Tucker says, and you can afford a more expensive house because youâre spending less on interest. When they are high, the opposite is true.
This is what compels people to buy when interest rates are lowâyou get more for your money. If you get a 30- or 15-year fixed-rate mortgage, you lock in that rate for the entire life of the loan, which could save you money now and into the future, Tucker says.
How does employment look nationally?
Finally, if you want to get a general idea of where the housing market may be headedâif prices will drop or rise soonâcheck out the national employment trends, Cororaton says. Low unemployment means prices will generally trend upward because more people can afford houses, boosting competition and prices, she says.
But if unemployment is inching up, then people are losing jobs and will be more likely to remain in their current homes. As a result, there tends to be less competition for them, lowering prices.
You donât need to be an expert in the market to determine if now is a good time to buy a house, but a baseline understanding of these big-picture forces can give you the confidence you need to embark on your home-buying journey.
Think about your future plans
After reviewing your savings and income and assessing the market conditions, take a step back and think about your life plans over the next few years. Your lifestyle and goals will help determine whether now is a good time to buy a house.
âFor buyers who are not certain whether they will still be living in the same place in three or five years, I would caution against locking themselves into a certain location,â Ziegler says. âIf theyâre just not sure what the future holds, it may be better to have that flexibility.â
Itâs unlikely in many markets that you will see substantial financial gain from homeownership if you move within five years, Ziegler says. Your equity gains will likely be offset by the transaction costs of buying and selling your home.
That goes for remote workers, too. Are you working from a home office these days? While widespread remote work may allow buyers to consider homes farther from their offices, ask yourself: Is my company going to permanently allow employees to work from home? Do I think there will be other remote opportunities in the future?
While youâre thinking about the next three to five years of your career, also consider the next three to five years of your personal life. Will you have a family? Will that family grow?
These can be weighty topics, so be sure to think them through on your own schedule. Buying a house is a big decision, and itâs not one to be rushed. By taking the time to assess your life, from your job security to your financial health to your lifestyle, and considering the impact of market factors, youâll have a clearer sense of when you are ready to buy a home.
If youâve decided that buying a house right now is the best decision for you, itâs time to learn more about how it will impact your budget. Get started by reading up on these eight unexpected expenses when buying a home.
Articles may contain information from third-parties. The inclusion of such information does not imply an affiliation with the bank or bank sponsorship, endorsement, or verification regarding the third-party or information.
The post Is Now a Good Time to Buy a House? appeared first on Discover Bank – Banking Topics Blog.
Payments started with the barter system a long time ago. People exchanged goods or services for other goods or services. Eventually legal tender took over and money, in many formsâfrom tea bricks to cow to seashellsâbecome the payment method of choice. Then virtual money came on the scene, including credit cards. And todayâs credit cards, have chips. Chips, Not to be confused with cow chips from cattle as money are known as EVM or Europay, MasterCard and Visa. EVM is a newer technology intended to protect users and lower the cost of fraud. But, just how safe are credit cards with chips?
The History of Credit Cards
In 1958, Bank of America successfully launched its first credit card, which later became known as the first successful modern credit card. These credit cards were supposed to be a replacement for the cash people carrier around.
Since 1958, credit cards have evolved. And one of the most recent evolutions happened in the U.S. about a year with the addition of a chip or EMV technology on credit cards. Chips replace the previous magnetic strips used on card. A magnetic strip was a black band on the top back of a credit card that relayed information about the payee, such as account number and enabled a merchant to process the payment. With the demise of mag-stripes, that information is passed through the chip.
Itâs believed that cards with chips provide a layer of security that wasnât provided by mag-stripe cards. But, just how secure are these cards and are they right for you?
Magnetic Stripe Technology
The technology of mag-stripe cards dates back 50 years and is similar to the technology used for cassette tapes. Data is loaded onto the mag stripe by the issuer. The stripe is stable and rarely degrades with time.
Whenever you make a payment with a mag-stripe card, the information loaded in the stripe is read over and over again. The down-side is that consistent data is easily stolen by thieves and hackers, because the magnetic field decodes the information and your bank information is then sent.
Thieves can use card skimmers at ATMs and other locations where you pay with your debit and credit card to steal your information. Stopping a thief from using your card information requires that you cancel your old card and get a new one loaded with new account information. But with the same technology, the new card is just as vulnerable as the old one.
EMV Chip Technology: Beneath the Hype
With the newer EMV credit card and debit card chips, the information on the card isnât static. Itâs always changing. Itâs consistently decrypted, changed, and re-encrypted, which makes it harder for thieves to steal it. The chip has a mini microprocessor within it that includes a one-time code for every transaction. With a unique code for each transaction, a hacker canât use the information, because that information was specific to a past transaction.
So, when shopping online or making payment through a physical payment point, the chip on your card sends a signal to the merchant and decrypts the language. Your payment information is then obtained using EMV authentication methods.
The chip also helps ensure that the transaction and the cardholder are verifiable. With mag-stripe cards, this is done by inputting your PIN and your cardâs CVV2 or security code.
In essence, your new card contains the same information your old mag-stripe card had, but the chip offers better security as it constantly generates new encrypted information, providing an extra layer of protection that mag-stripe technology couldnât offer.
So the answer to âhow safe are credit cards with chips,â is that they are safer than older card technologies.
Regardless of the added security with EMV chips, identity thieves will always attempt to steal your information in a bid to gain access to your money. So, itâs still important to take steps to protect your finances, pay for goods safely and avoid getting robbed.
Here Are a Few Ways to Keep Your Chip Credit Card Safe
1. Protect your numbers
Never tell your credit card number or PIN to anyone. With any of these numbers, itâs easier for a theif to gain access to your account and your money. If possible, sign for transactions instead of using your PIN. This way if a false transaction happens, the blame rests on either the bank or the merchant. And never send your account number or PIN in an email, text message or social media.
2. Keep track of your bank statements
Banks are diligent in stopping fraud and preventing fraudulent activity before it happens. Several banks notify customers of an attempted unauthorized use of their debit card at suspicious locations, while other banks flag suspicious transfers and call customers immediately.
Thanks to the extra security made possible with EMV technology cards, itâs not as easy for thieves to steal information. However, itâs still important to review your bank statements regularly in order to spot suspicious transactions. If you find any of these, report the discrepancies to your bank immediately.
3. Choose alternative payment methods
A great way to ensure the safety of your information is to give preference to retailers and vendors using mobile payment technology. Doing this significantly reduces the risk of thieves stealing your information. You can also add your debit and credit cards to your phone, use mobile-friendly payment terminals to ensure your shopping experience is secure. You might also consider investing in identity theft protection.
4. Keep an eye on your credit score
Watching your credit scoreânot obsessivelyâbut judiciously, can help alert you to changes in your credit, which can indicate that your account information or identity has been compromised or that youâve had fraudulent charges made. On Credit.com, you can sign up for free access to your Experian credit score. On Credit.com, your score is updated every two weeks. And you get access to a free credit report card so you can see what steps you want to consider to keep your credit good or maybe make it better.
The post How Safe Are Credit Cards with Chips? appeared first on Credit.com.
Here’s how you can freeze your credit to avoid fraudulent activity. This is especially important after a hack like the one experienced by Equifax recently.
