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Is it time to buy a home?
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August 23, 2001: 2:17 p.m. ET
With mortgage rates so low, at least one part of your decision is made easier
Money.com Staff Writer Jeanne Sahadi
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NEW YORK (Money.com) - The Fed has slashed interest rates seven times this year, mortgage rates are near historic lows, tax rates have been cut and you've been parking some cash on the sidelines of a wicked stock market. So, you might be wondering, is now the best time to become a homeowner?
The short answer, experts say, is a qualified "Yes."
With interest rates low – the 30-year fixed mortgage rate now stands at 6.91 percent – you're in a good position to pay less for a home long-term, even if you think home prices in your area remain high. Mortgage buyer Freddie Mac forecasts the benchmark rate is not likely to go much over 7 percent through 2002.
"The best time to buy a home is always five years ago," says Ray Brown, co-author of Home Buying for Dummies. By that he means, five years from now you'll see how cheap today's prices are.
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 30-YEAR FIXED RATE MORTGAGE
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Week ending Aug. 24: 6.91%
One-year ago: 7.99%
30-year low: 6.49% (1998)
30-year high: 18.63% (1981)
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The National Association of Realtors reported that home prices rose in the second quarter, and the trend in the national median home price has been up since World War II, says Freddie Mac chief economist Robert Van Order. Indeed, historically most home prices have risen more than a couple of percentage points above annual inflation.
Keep in mind, when you buy a home you're buying three things, Brown says: physical shelter, tax shelter (you get to deduct mortgage interest and pocket much of the appreciation tax-free when you sell) and a hedge against inflation.
Does it make sense for you to buy? How much house can you afford? Use Money.com's Rent v. Buy calculator and its Mortgage Qualifier.
That being said, you need to ask yourself a few other questions before plunking down tens of thousands of dollars for a down payment, no matter how good an interest rate you secure. Among them:
What's the general economic climate of the area? If your new-home-to-be is in a place closely tied to one industry, it's also tied to that industry's economic fate. A downturn can mean a slide in home prices, as can a big company's decision to pack its bags and leave town. And, of course, your financial risk multiplies if you're employed by that company or its neighbors.
Can the house accommodate changes in my life? "A house doesn't have as much elasticity as your life," Brown says. A one-bedroom condo may be perfect for a young couple now, but they'll be forced to move if they start a family.
Am I looking to make a quick profit? Don't bank on it. Van Order sees growth in housing prices declining and with it, the chance for opportunity selling.
How long do I plan to live in the house? To get the most out of your investment, you should have at least a five-year horizon, but the longer the better since appreciation helps offset closing costs. If you plan to move in fewer than five years, consider taking out an adjustable rate mortgage (ARM), the rates for which in the first year are usually considerably lower than a 30-year fixed rate, Van Order says.
Can I afford the upkeep? Don't forget the cost of owning a home will far exceed your monthly mortgage payments. There are closing costs, home insurance premiums, taxes and general maintenance, not to mention the occasional dollar-sucking repair or home improvement. 
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