When is the best time to buy a house?

The best time to buy a house is when your personal financial position is ready, not when the market is perfect. That means having a strong credit profile (credit score requirements vary by loan program), a manageable debt-to-income ratio, a down payment saved and three to six months of expenses in reserve. Market conditions matter, but your overall financial picture plays a larger role.

What's the most important factor when deciding if it's the right moment to buy a house? While plenty of people will tell you it's best to buy when interest rates are low or when it's a "buyer's market," trying to time your home purchase to match ideal external conditions often leads to regret. You may freeze up, nervous about making the wrong move or act in haste, buying before you're really financially ready.

You, and your financial circumstances, are the deciding factors when it comes to home-buying. Once you have your financial ducks in a row, meaning a decent credit score, a low debt-to-income ratio and significant savings for a down payment and cash reserves, then it's time to seriously consider buying a home. Market conditions matter, too, but not as much as your personal financial readiness.

Personal financial readiness

To determine if you're financially ready to buy a home, you (and a lender) need to examine four criteria:

• Your credit score
• Debt-to-income (DTI) ratio
• Down payment
• Emergency reserves

Credit score: The gateway number

Your credit score gives a lender an idea of how well you handle debt. Do you pay on time? Do you have a lot of debt? Have you been using credit for a while? To qualify for most types of conventional mortgage, you need a minimum score of 620. Higher scores, starting at 670, usually mean lower interest rates. A score above 760 usually means you get the best possible interest rate.

While a 6.5% and 6.25% - interest rate may not look that different, over 30 years, that fraction of a percentage point can add up to thousands of dollars. Giving yourself time to boost your credit score can save thousands over the long run.

Debt-to-income ratio: The number lenders watch most closely

How much debt you already have influences how much house you can afford to buy. You can calculate your debt-to-income (DTI) ratio by dividing your total monthly debt payments by your pre-tax, or gross, monthly income. Lenders typically want to see a DTI below 43%, with the cost of a mortgage making up no more than 28% of that debt.

Once your DTI creeps above 43%, that can mean you're likely to have trouble making ends meet and that owning, and paying for, a home will be too much of a burden, rather than a wealth-builder.

Down payment: Separating myth from minimum

The good news: You don't need to put 20% down to get a mortgage. The average down payment for first-time buyers is around 6 to 8%. Putting down 20% means you don't need to pay for private mortgage insurance and your overall monthly payment will be less. But conventional mortgages are available to buyers with as little as 3% down. FHA loans allow you to put 3.5% down.

There's more good news about down payments. State and local down payment assistance programs can often step in and give you a boost, even if you only have a small amount to put down yourself.

Emergency reserves: The cushion most buyers forget

Houses tend to be full of surprises, and those surprises can be expensive. That's why it's a good idea to have at least three, but ideally up to six, months of living expenses set aside before you buy a home. You may need to tap into your cash reserves to pay for repairs or replacements should something break or to cover the cost of your property tax or insurance obligations.

If putting even a small amount down is going to empty your bank account, it's best to wait until you have a bit more saved to avoid turning your mortgage and property into a burden.

Housing market readiness

Once you're financially ready to buy a home, consider the market conditions to determine if the time is right to get into the homeownership game.

Mortgage rate environment

The rate you get on a mortgage directly impacts your monthly housing costs. While mortgage rates fluctuate constantly due to broader economic conditions, trying to time the market is a gamble. If you're ready to buy now, don't try to wait and see if rates will drop, especially if you've found a home you love and that's priced right. You may be able to refinance your mortgage later if rates fall.

Seasonal pricing patterns

In the spring, from April to June, it seems like everyone is trying to buy a home. That often leads to serious competition, and higher prices to match. In the fall and winter, there are usually fewer buyers, more motivated sellers and lower prices all around, with January historically being the cheapest month to buy in. The median price of a home is 5% to 8% lower in January and February, meaning tens of thousands of dollars cheaper. The trade-off is that fewer homes are available.

So if you're ready to buy in the winter months, don't be afraid to jump in. Just keep in mind that you may not find the ideal home until more sellers put their properties on the market.

3 common obstacles to buying a home

If you want to buy a home, but you haven't cleared the financial hurdles just yet, here's what you can do:

• Credit score below 620. To increase your score, cut back on your credit card usage, aiming to keep your credit card utilization below 30%. Pay all your bills on-time for at least six to 12 months (and beyond). You should begin to see an improvement in your score within one to two billing cycles.
• Down payment savings insufficient. Research your state Housing Finance Agency programs and other down payment assistance programs. FHA loans require as little as 3.5% down, and gift funds from family members are permissible with a documented gift letter.
• DTI too high due to student loan or auto debt. To reduce your DTI quickly, pay down the debt with the smallest balance first. Starting 12 months before you want to buy a home, avoid taking on any new debts.

Your financial position is the market

The best time to buy isn't a month or date. It's when you, and your finances, are ready. If your credit score is right, your DTI below 43% and you have enough saved for a down payment and cash reserves, take the first step towards homeownership and learn more about Citizens home loans.

Ready to take the next step?

Buying a home is one of life's most important financial decisions. That's why thousands of homebuyers turn to Citizens for personalized guidance, competitive mortgage solutions, and support every step of the way. To learn more about our mortgage solutions, please call 888-514-2300, visit us online, or find a Citizens Loan Officer.

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Frequently asked questions

What credit score do I need to buy a house for the first time?

Most lenders require a minimum credit score of 620, with higher scores meaning lower interest rates.

Should I wait for mortgage rates to drop before buying?

If you're financially ready to buy, there's no time like the present. You never know if rates will rise or fall, so it's best to buy when you're ready, rather than try to time the market.

What is a debt-to-income ratio and why does it matter for a mortgage?

A debt-to-income ratio compares your monthly debt payments to your income. The lower your DTI, the less financial strain you have.