Buying a home is not a decision that you should make quickly or lightly. For most individuals, a home loan is their most significant debt, and it may take 20 or 30 years to pay off. Besides paying off this balance, you also need to pay the interest.
Some home buyers decide to try waiting for a particular time of the year when interest rates and home prices will be most favorable. However, choosing the right time to buy, may not be as simple as waiting for the seasons to change. During certain times of the year, you may find lower home prices and higher interest rates or vice versa. To get the best deal, you should understand how the seasons affect the property market and which aspects have the most significant impact on interest rates.
The Summer Often Brings Higher Home Prices
If you want the lowest rates, the summer may provide the best time to consider buying a home. Unfortunately, the time of the year when there is an increased demand for homes is also often the time when home prices are at their highest. Traditionally, the summer is the season for buying and selling homes. During the summer, more people start searching for potential homes. Homeowners are also more likely to place their homes on the market in the late spring and early summer, and by the middle of July, home prices tend to peak.
The Winter Brings Higher Home Loan Interest Rates
Often, after the summer period, home prices begin to settle. By December, the average prices tend to reach their lowest point. Fewer people are looking for homes and lenders need to increase their interest rates to continue meeting their earnings projections.
The winter time may offer the best deals on homes. There are also fewer buyers looking for homes, giving you the chance to place lower bids. However, it is essential to pay attention to the interest rates during this time of the year. It is good practice to evaluate the state of these interest rates through free online comparison services that can offer you the current and most favorable deals from a multitude of lenders.
The Time of the Month May Make a Difference
During the first week of each month, lenders are more focused on gaining new home loan applications. As the month wears on, lenders tend to be more concerned with processing and completing these applications. If you begin the application process during the last couple of weeks of the month, it may take longer to get a response and have your application approved or denied.
Understanding Supply and Demand
Interest rates and home prices are directly connected and influenced by supply and demand. When more buyers are in the market for new homes, the interest rates tend to decrease. The increased demand for loan products results in more competition for the lenders, which provides the perfect time to compare home loan interest rates.
When there are fewer buyers in the market for new homes, lenders need to boost their interest rates to continue maintaining their profits. The decreased demand causes higher interest rates.
The basics of supply and demand may help potential home buyers understand why interest rates change throughout the year. However, these are not the only factors. The state of the economy and federal interest rates can also have an impact on the current rates offered by the top lenders.
Due to the additional factors, it is not always easy to predict when interest rates may rise or fall. Most real estate agents agree that the best time to buy a home is now, no matter what time of the year it is. In most regions, home prices gradually increase over the years. Buying a home now instead of waiting for the perfect interest rate may help you get the best home price.
You Should Buy a Home When You Can Afford a Home
While you can get a comparison of interest rates, you never know when interest rates are going to be at their lowest levels. The summer may occasionally bring lower interest rates, but this is not always the case. The summer may also carry higher home prices as well, while the winter period offers up its own pros and cons. Home prices may decrease while interest rates rise. Instead of worrying about these changes, you should focus on whether you can afford a home.
Without an adequate down payment on your home purchase, a lower interest rate may not make much difference at all. The additional funds that you may need to borrow will result in more interest payments during the life of your loan. Lenders have traditionally preferred borrowers to place at least a 20% deposit on a home purchase. While lenders have started easing their requirements after the financial crisis of 2008, a smaller deposit still typically results in higher interest rates.
Along with the deposit, you should analyze your credit history. Lenders may consider you a higher risk entity and in turn, offer you a higher rate. If possible, attempt to pay up your debts before applying for a loan. For those with significant debt, consolidation may provide a way to start improving your credit score. Lenders also look at your income and job stability when evaluating your home loan application. When you start your home search, you may want to avoid switching jobs or choosing to quit your job and become self-employed.
The time of the year may not be as important as these factors. Instead of waiting for the perfect season, you should be more concerned with your deposit, credit history, income, and job stability.
When Should You Buy a Home?
Buying a home is always a major decision, no matter what time of the year it is. There are advantages to buying during the summer and winter, along with a couple of drawbacks either way. The summer is a great time to view a wide selection of homes. You may have more options during the hotter months compared to other times of the year, along with more options for lower interest rates. The drawback to summer shopping is the higher home prices. However, if you wait until winter for the average prices to drop, you may also face a limited selection of homes and higher interest rates.
In the end, the best time of the year to buy a home depends on your current finances. If you want the best deal, you should wait until you can afford a house. You should save up a suitable deposit, take care of any credit issues and consider the above-mentioned factors before making any life-long commitments.