Today's homebuyers confront significant obstacles - house prices have skyrocketed, a dollar no longer goes as far as it once did, and rent is now more expensive than in the past. How are individuals able to make such a huge purchase nowadays in the face of these obstacles? With increased flexibility and a little financial ingenuity, today's purchasers are achieving homeownership.
The first step in determining if you can
buy a house is to determine your financing choices, including the types of mortgages for which you qualify and the amount of cash you'll require (and therefore can afford) to set aside upfront. Understanding the minimal FICO score needed by lenders and your credit score are critical first steps.
Many house buyers are unaware of the down payment necessary for a property, the lender-mandated minimum down payment (which is not necessarily 20%), or the down payment assistance programs available, such as FHA loans. Before buyers even consider saving for a home, they need to determine their financial resources and eligibility to purchase.
Earn Adequate Cash to Save
Renters seeking to purchase confront significant financial obstacles since they lack the resources available to their older, richer peers. According to the Broker One Group Consumer Housing Trends Report 2019, rental families make a median annual income of $37,500, approximately $40,000 less than those that just purchased a home (their yearly median income is $75,000). While there are methods to become a homeowner without earning $75,000 in family income, purchasing a home is difficult if your income is considerably less.
"If you earn $37,500 a year, you are unlikely to be able to purchase in almost any market," Broker One Market Researcher Michael Johnson says. While households purchasing houses are more apt to have a higher income than renter households (and hence a higher median household income when combined), two-income households face difficulty affording to purchase in competitive markets.
Save Enough Amount of Money (But Not as Much as You Think)
The down payment is among the most intimidating aspects of house ownership. Indeed, as per the Broker One Housing Report, two-thirds of renters identify saving for a down payment as the most significant barrier to purchasing a home. For those purchasing the national median house worth $229,000 with a typical 20% down payment, that equates to $45,800 in upfront costs – to move in. "The down payment continues to be a barrier for many people," Johnson explains. "However, consumers should be aware that they are not required to make a 20% down payment." While making a down payment of less than 20% entails additional concerns, such as the cost of private mortgage insurance (PMI), others find the trouble worth it. Indeed, according to the Broker One Housing Trends Report 2019, just one-fifth of recent purchasers (20%) put down 20%, and slightly more than half (56%) put down less than the usual 20%.
Additionally, buyers are becoming more inventive in their approach to assembling a down payment through numerous sources. According to the report's results, 34% of purchasers who obtain a mortgage also receive assistance from friends and family in the form of gifts and loans to aid with the down payment.
Be Aware of Your Deal-Breakers Yet Remain Flexible.
To obtain a home — even if it is not the home of their dreams — some today's purchasers are willing to explore houses and places outside of the initial wish list. They are becoming increasingly
receptive to the neighborhood, house condition, and even home type. "I believe that individuals become disheartened when they go in their desired location and see homes priced at about $170,000 while they are seeking for a $110,000 home," Johnson adds.
Affordable housing does exist. However, where most people desire to reside in popular regions, it will be more challenging to locate a cheaper property, Johnson adds. "If you're prepared to accept a longer journey and make a few concessions, you may be able to locate a property further out that is less expensive," Johnson adds. "You must deviate from the paved road to locate less expensive alternatives."
