Home > 2016 > Mortgages

Should I Keep Saving for a Home or Buy Now?

Advertiser Disclosure Comments 0 Comments

Saving up to buy a home is no easy feat.

One of the key components of being able to successfully buy a home is having enough cash for a down payment plus closing costs. Generally, you’ll need at least $20,000 to buy a home. The old 20% down rule does mean a low payment, but may or may not make sense for your specific financial situation.  As you continue to save, your ability to buy a home could be compromised if you are in an area such as Sonoma County, California, or other pockets of the country where prices continue to rise.

Can you get in now? Does it make sense? If you have enough money to also meet your other financial obligations, buying a home with a long-term, fixed-rate mortgage is generally a safe bet.

On the other side, if you’re in a competitive market, buying a home now may mean taking on a payment slightly higher than might be financially optimal. It may mean a higher payment until you can pay off some debt, you come into some cash, a life event happens or your income is set to rise. If you know one of these things will happen, taking on those higher mortgage payments could make sense. If not, it may be best to wait.

Here are some other factors to consider when deciding when to buy.

1. Rising Interest Rates

If rates go up, even a little, your payments likely will as well. Every .375 rate increase generally means you pay $75 more per month on every $100,000 borrowed. In other words, the more home you are trying to buy, the more exposure you have to payment volatility based on changing rates. This, of course, ties directly into how much payment you’re looking to handle on a monthly basis.

2. Rising Home Prices or a Higher-Priced Home

Homes typically move at a faster pace in terms of volume, activity and appreciation than your ability to save. If you are saving 8% of your gross income, but homes are appreciating at 10%, for example, you are going backwards. It means your down payment will be worth less as the home may inevitably cost more in the future, depending on your market. If you were to buy a home today for $550,000 or wait a year and that $550K home is a now a $600K, you would’ve missed an opportunity.

If you are looking to buy a home, and you can afford the mortgage payment, generally speaking it might make sense to do so knowing that you would be on a fixed-rate,amortizing principal-and-interest mortgage – nothing exotic – while continuing to build equity in your home. This way you have two factors at work in your favor: the equity built up by virtue of making your payment each month, and your home’s increase in value.

Case in point: if you buy that house at $550,000 today and that house becomes $600,000 in 12 months, you can refinance for payment reduction, making the home more affordable.

3. Your Credit Score

While you don’t need a perfect credit score to get a mortgage, people with scores below a 620 can have a tougher time securing financing. If your score is subpar, it’s a good idea to try and clean up your credit before you look to buy a home. You can pull your credit reports for free each year from AnnualCreditReport.com, then hunt for and dispute errors and discrepancies.

Working hard to improve your score may also help you nab a better interest rate, so the state of your credit score is worth considering before you buy a home. You can monitor your progress by viewing two of your credit scores for free each month on Credit.com.

[Offer: Denied from a loan? It may be because of a low credit score due to errors on your report. Lexington Law can help you navigate the credit repair process so you can get back on track. Learn more about them here or call them at (844) 346-3296 for a free consultation.]

More on Mortgages & Homebuying:

Image: ?David Sacks

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team