According to a recent report from Redfin, as of October 2022, in order to afford a “typical home” with the median monthly mortgage payment of $2,682, a buyer would need to earn at least $107,281 to be able to afford the loan. While prices may have slowed in their growth recently, that still represents a 45.6% increase from a year ago when an income of $73,668 would have covered the median mortgage payment.
Rising interest rates have made the biggest difference in affordability, experts say, as rates have more than doubled since the beginning of the year. The average rate on a 30-year fixed rate conventional loan was around 3.5% in January 2022 but has ballooned to around 7% in the last 11 months. Prices are not rising as fast as they have over the course of the pandemic, but they are still higher than last year. What’s more, U.S. incomes are not growing nearly as fast as home prices and inflation.
If you’re hoping to buy a home in this climate, don’t lose hope. There are several strategies you can employ to be able to afford a house without earning six-figures.
Adjustable Rate Mortgages
Adjustable rate mortgages (ARMs) provide borrowers with ultra-low introductory interest rates, after which the rate is allowed to adjust annually based on market indexes. The low-rate period can last anywhere from five to ten years. If you plan to be in the home for less than ten years, an ARM might be a great way to qualify for a bigger home than you could otherwise afford. If you anticipate staying past the introductory rate term, you might be able to refinance into a fixed-rate mortgage before the rate starts moving. Hopefully, after a few years of homeownership, your income will increase, and you’ll be able to afford a traditional loan.
Provide a Higher Down Payment
If you have any extra funds to contribute, increasing your down payment can help you qualify for a bigger mortgage. You could always ask family members for help with your down payment or apply for a down payment assistance program. Your lender can probably refer to some local options. You do need to be careful, though, that you leave enough money in your bank account to pay for normal homeowner expenses like maintenance and repairs.
Consider More Affordable Areas Nearby
If you are one of the millions of Americans whose jobs converted permanently into online work after the pandemic, you can consider moving to a more affordable area whether within your town or even in another state. It is easy to find data on the Internet of places where the home prices are more reasonable. Of course, you should make sure you research the new area and that it fits all your major lifestyle requirements. It’s also important to buy in an area with decent home price appreciation so that you can sell down the road if you ever want to move.
With a little patience and homework, it is still possible to become a homeowner in today’s crazy market.
These are just a few of the many ideas. Give us a call today and we can discuss others with you buy phone as well.
These materials are not from HUD or FHA and were not approved by HUD or a government agency