With interest rates likely heading up, many would-be homebuyers are rushing to lock in mortgages before borrowing gets even more expensive. While snagging a lower interest rate will make your monthly payments more affordable and save you money in the long run, buying a home right now may not be the best move.
Here are a few scenarios where you'd be better off waiting:
1. You're new to your job
Being in a new employment position can spell trouble from a homeownership perspective on more than one front. First, if you don't have an established payment history, you may have trouble getting approved for a mortgage in the first place.
Even if you are approved, you may want to wait a few months and make sure your new role works out before taking on the financial responsibility of owning property.
Imagine that after a month or two on the job, both you and your employer agree that your role just isn't a good fit. In a best-case scenario, you'll be stuck in a job you don't like in order to cover your mortgage payments. In a worst-case scenario, you'll be let go without much warning and lose your income in the process. You're far better off waiting things out a bit and making sure your job situation really is stable before committing yourself to a mortgage.
2. You can't afford the down payment
While you don't necessarily have to make a 20% down payment to purchase a home, if you don't save that amount, you'll face what could be a rather long-term consequence: private mortgage insurance (PMI).
PMI is usually paid as a monthly premium on top of your regular mortgage payment, and it's typically calculated as 0.5% to 1% of the value of your mortgage. If you take out a $250,000 mortgage at 1% PMI, you'll spend an extra $208 a month to live in your home.
Though putting less money down and paying PMI can be a good solution for a high earner with limited savings, for many people, PMI makes it even more difficult to keep up with housing payments. If you can't afford to put 20% down on your home, you may want to wait a year or two, save aggressively, and buy at a point where PMI won't come into play.
3. Buying a home will wipe out your savings
Though everyone needs an emergency fund, having extra reserves is especially crucial for homeowners. That's because when you buy a home, you never know what hidden expense is lurking where you'd least expect it. If you don't have enough in the bank to make a down payment on your home while also retaining enough to cover three to six months of living expenses, you'd be wise to consider holding off until you have more in savings.
Imagine you use all of your savings to buy your home and come across a $10,000 repair several months later. Without an emergency fund, you'll probably have no choice but to take on debt to cover that expense.
Even if nothing actually goes wrong with your home, you never know when you might fall ill, get injured, or encounter another scenario where you're out of work for months at a time. If you don't have emergency savings in place, you'll risk not only racking up debt but quite possibly losing your home. And that's not a risk you want to take.
If you are going to move forward with buying a home, don't make the mistake of rushing through the process. While interest rates may rise, waiting an extra month or two shouldn't make a huge difference in the grand scheme of things, and it could buy you more time to do your research and shop around for the best rate.
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Finally, while nobody wants to pay more interest than necessary, remember that today's rates are still fairly competitive, especially compared to what rates looked like in years past. Whether you decide to get a mortgage this month, the following month, or six months after that, as long as your credit is good, you're likely to snag a rate that's still pretty darn attractive.
