Housing is at near record levels of affordability. At least that’s what the experts say. However, you may find that it feels more expensive than ever.
If you’ve been searching for a home lately, you’ve probably been confused by the fact so many people are telling you home rates are affordable – because to you they seem unreachable.
What is it about the market which makes it feel this way?
Let’s look into a few factors.
The Housing Affordability Index – What Is It and How Is It Calculated?
The current Housing Affordability Index (HAI) is what has so many people excitedly proclaiming home buying is more affordable than it has been in decades.
This index combines all of the important information pertaining to housing affordability. These include:
- House prices
- Family incomes
- Mortgage rates.
While this information is important in determining the current affordability of the housing market, it doesn’t do a good job at determining the affordability for an individual family.
For example, housing prices in your area might be low, but this doesn’t mean you have sufficient income to afford those houses. Or, let’s say you have enough funds coming in. That’s great – unless, of course, you have a lot of debt. Significant debt can make your debt-to-income ratio go above the loan qualifying limit.
So, while housing may seem more affordable than ever on the surface, you and many others like you might feel this really isn’t the case.
Housing Is More Affordable, But There Are Definite Hurdles
While the Housing Affordability Index may point to improved affordability, there are definite hurdles each individual home buyer has to face. Here are just a few you may have encountered.
1. Houses Are Really Expensive in Your Area
Across the country, home prices may have dropped. But the HAI is just looking at the average. A lot of communities have homes for sale which are well above the national average. For instance, you might spend $600,000 in California for a home which would cost $150,000 in Texas.
Even within the same state, there are going to be cost differences. Homes in larger cities tend to be more expensive, or homes with an exceptional view might cost more than those in town.
2. There Aren’t Any Houses Available
Another problem you may face is some communities are experiencing a housing shortage. Older homes aren’t going up for sale and new homes aren’t being built. Home buyers in this situation may have to either put their home buying goal on hold or purchase a home in a different area.
3. Documentation of Stable Income Issues
In order to qualify for a loan, you need to have proof of a stable income. This can be really difficult if you’re a small business owner, entrepreneur, or seasonal worker. Even if you have enough for a down payment, not being able to show proof of stability can be a major hurdle.
4. Low Credit Scores
Lenders want to give money to reliable borrowers. Having a low credit score is often viewed as proof you might not be reliable enough.
Another credit score issue is what’s been deemed as “credit invisible.” You could be considered “credit invisible” if you don’t have any credit or a bank account (either savings or checking accounts). It could also mean you haven’t had a loan or credit card for very long and you don’t have sufficient history to be granted a credit score.
5. Too Much Debt
One of the most common reasons for loan application rejection is a high debt-to-income ratio. Lenders worry you won’t have enough money to honor your debts as well as a monthly home loan payment.
Even if you’ve been able to make regular monthly debt payments, lenders are concerned at some point down the road you won’t be able to care for all of your obligations.
This is one of the issues facing millennials. The high levels of student debt these young adults have make their debt-to-income ratio quite high, making it very difficult for them to qualify for a home loan.
6. You Don’t Have Enough for a Down Payment
A lot of people aren’t able to save up enough money for a down payment. Many people trying to buy a home don’t have the recommended 20% down payment rate for a loan.
7. You Can Afford the House but Not the Maintenance
Buying a home isn’t just about the up-front payment. Don’t forget you’ll have property taxes, insurance, utilities, regular upkeep, and maintenance expenses to pay, too.
Talk to a Loan Officer to Find Out If You Qualify
Understanding the Affordable Housing Index and all the intricacies of getting a home loan can seem overwhelming – even to the most educated buyer.
Northpoint Mortgage’s loan officers aren’t here to simply find out if you qualify for a loan. They want to help you buy a home. This means they will do all they can to find the right loan for your needs and budget. Plus, they will take the time to educate you so you have all the information you need to make the best decision.
We want to make the home buying prospect as simple as possible for you. We welcome you to contact one of our experienced loan officers to discuss just how affordable homes in your area really are.
Even if you don’t qualify for a loan at this time, our loan officers will show you what needs to be done so you can qualify for a home loan as soon as possible.
Would you like more information about home loans, how to qualify, and what hurdles you need to overcome in order to finally purchase a home? If so, contact us today. We’re happy to answer all of your questions.