Buying a home can bring about challenges you weren’t prepared for. Thankfully, some research, flexibility, and a little bit of creativity can help you overcome them– and end the process with the keys to your new place in hand. Today’s market is tough. Housing prices continue to rise and homebuyers are not getting near as much house for their money as they did just a couple years ago. In addition, rent continues to rise so it seems like one obstacle after another. But people are still closing on homes every day. How are they doing it? Being more flexible and getting creative when it comes to financing.
Financing Options & Your Credit Score
The first step in figuring out how much house you can afford is knowing what financing options are available to you. This includes what mortgages you qualify for and how much of a downpayment you will be expected to put down. Research lenders and what the minimum FICO score they require for you to qualify. You will also need to assess your credit score and understand how that can impact your ability to get the loan you want. People shopping for homes are sometimes unaware how much they will be expected to put down– not all lenders require a minimum of 20%. There are also programs that assist home buyers with down payments, such as FHA loans. Before you begin your home buying journey, take the time to figure out what financial resources are available to you and if you are in the position to buy.
Making Enough Money to Afford to Buy
Renters trying to buy today are faced with more difficult financial headwinds than renters in the past. Renter households, on average, have a median income of $37,500 annually. This is less than half of the median income netted by recent homebuyers. Sure, there are ways you can own a home without earning $75,000 a year, but it is hard. If you are making less than $40,000 a year, it probably wouldn’t be feasible for you to buy in any market but especially in the one that exists today. It is more likely for people buying a home to have two incomes compared to households that rent, which means a higher median income, but even dual-income households are struggling to afford a home in this competitive market.
Stash Some Cash for a Down Payment
One of the hardest parts of buying a home is coming up with the down payment. Two-thirds of renters say that saving for a down payment is the most challenging aspect they face as they prepare for homeownership. As home prices skyrocketed in the last couple years, so did the median home value which is currently $428,700 in the United States per the Federal Reserve Economic Data. With the traditional 20% down payment, that would mean homebuyers need $85,740 just to close. Crazy, huh? In Kentucky, our average median home value is $197,413. With the standard 20% down, that’s nearly $40,000 a person or family will need to put down. It is understandable why this is such a hurdle for a lot of people. However, you need to know that you aren’t always expected to put that much down. But putting less that 20% down means there are few other things you will have to consider, like the cost of private mortgage insurance (PMI). Recent housing trends reported that only ⅕ of recent buyers put 20% down while more than half put less. Buyers have started to get creative when it comes to getting their down payment together and have started sourcing from more than one place. About ⅓ of buyers who get a mortgage loan have received help from their friends and family for their down payment
Don’t Settle but be Reasonable in Your Wishes
Your home is likely going to be the biggest investment of your life so it is important that you don’t buy something just because you can. Know your deal breakers but also, remain flexible. Many buyer’s today are doing what they need to in order to close on a home like considering homes and towns that weren’t initially in their wishlist. They are also having to be more flexible when it comes to the neighborhood, condition of the home, and even the type of home it is. It can be discouraging for homebuyers to look in the neighborhood they had hoped to buy in only to be greeted with home prices well above what they are able to afford. Affordable homes do exist, even in this market. However, they can be hard to find in more popular areas where more people want to be. You might have to be willing to sacrifice a short commute and other little things to purchase a home. Thankfully, when the deal is done, you can fix it up how you want it and change the little things a little at a time. You might have to leave the path you planned to take but you will find the home that is meant for you– just be patient.
Contact us (859) 979-1508) for a free consultation!
About The Real Estate Company
Residential and Multi-family Realty Services for Lexington, Richmond, and Surrounding Areas. We close over 40 million in sales each year. Our love for Central Kentucky and our clients is the key to our success. We provide careful guidance, persistence, and savvy marketing to deliver results for our clients time after time.
> Learn More