Rent Vs. Buy – Explaining Housing Affordability

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Rent Vs. Buy Explaining Housing Affordability
Explaining Housing Affordability The National
Association of Home Builders (NAHB) and Wells
Fargo have been calculating the Housing
Opportunity Index (HOI) for more than 30 years.
The surveys are released quarterly and take into
account two things, income and housing. The
survey covers 237 metropolitan areas across the
U.S. as well as the national averages. According
to the latest HOI survey released on May 10th,
rising wages have offset rising home values and
interest rates, boosting housing
affordability. The latest HOI data show 61.6
percent of new and existing homes sold between
the beginning of January and end of March were
affordable to families earning the U.S. median
income of 71,900. This is up from the 59.6
percent of homes sold that were affordable to
median-income earners in the fourth quarter of
2017. How is the HOI calculated? The housing
cost calculation takes into consideration the
price of homes and the interest rate. Todays
low-4 rates have made a huge impact on housing
affordability. Average mortgage rates rose by
nearly 30 basis points in the first quarter to
4.34 percent from 4.06 percent in the fourth
quarter of 2017. Remember,these rates are still
low compared to
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historical rates, which average around 7 percent.
To understand the impact of interest rates on
affordability, read this handy chart Interest
Rates and Home Affordability.
For income, NAHB uses the annual median family
income estimates published by the Department of
Housing and Urban Development. They use the
figure of 28 of gross income as an average
amount home buyers can afford to spend on
housing. Divide the 28 of average income by 12
to come up with a monthly amount allowable for a
mortgage. Keep in mind that FHA limits are 31
for mortgage costs. Should I Rent or Buy in
Berkley property management ? Given the fact that
Berkley property management is very affordable,
compared to metropolitan areas nearby, and given
the fact that home values are on the rise, lets
establish that it is generally a good time to get
into homeownership. The real questions you must
answer are about your personal situation. For
some people, buying their home makes the most
sense, and for others, renting is best. Here are
six questions to help you determine if 2018 is
the right time for YOU to buy 1. Do you have
savings? Even though there are a number of zero
down payment programs, you must plan for closing
costs and many other one-time expenses as a
homeowner. Insufficient savings may
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not prevent you from buying a home but it is a
strong indication that you may not be prepared
for the ongoing financial requirements of
homeownership.
How much should you have saved? It depends on
what price range you are considering, as well as
the loan you will be using. With an FHA financed
loan, you will need to have 3.5 for a down
payment. On a 325,000 home (average in
Frederick) that is 11,375. You will have some
other expenses, like the home inspection,
typically 400 to 500. You may have some
closing costs, like origination fees, and fees
from the title company, typically 2 to 3 of
the purchase price. Sometimes buyers can
negotiate with the seller to pay closing costs,
but its best to be prepared. How much do you need
for a downpayment on a home? For most first-time
buyers, FHA loans are a great choice, with
low-downpayment and common sense qualification
criteria. But there are also conventional loans
and VA loans to consider. The downpayments will
vary with each loan and each lender. 2. How much
debt do you have? A lender will calculate your
debt-to-income ratio, which is different for each
loan product. Your debt-to-income ratio is all
your monthly debt payments divided by your gross
monthly income. A conservative number to shoot
for is having a mortgage that is 28 of your
income. This is called the front-end ratio. Most
mortgages have a maximum back-end DTI ratio of
43. The back-end ratio takes all your debt into
account. You can do a quick calculation and
decide how you fare in the category of debt. To
calculate your debt-to-income ratio, add up all
your monthly debt payments and divide them by
your gross monthly income. Your gross monthly
income is the amount of money you have earned
before your taxes and other deductions are taken
out.
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If you are thinking about a home purchase youll
want to plan ahead to minimize your debt. Youll
want to consider foregoing a new car purchase.
Youll want to pay down your credit cards and
pay off some debts. 3. How is your credit
score? Your credit score is an important asset.
Your lender will consider your score as an
indication of your credit worthiness. Typically,
the higher the score, the lower your interest
rate. Additionally, your credit history is
important. While you can always find a lender to
lend you money, solid lenders are more skeptical
if your credit history is not good.
Minimum Scores. While FHA and Freddie and Fannie
have minimum scores, (A minimum of 580 is
necessary to make the minimum down payment of
3.5.) many lenders have their own requirements.
(FICO credit scores start at 300 and go up to
850.) Most lenders require a score of 620 to 640
to qualify. The higher your credit score, the
lower risk you are. The lower risk you are, the
lower your interest rate. Shoot for a high credit
score, not a minimum score. 4. Is your
employment situation steady?
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• While we can never predict the future, you
  probably have a sense of your job or business
• security. If youre working for a start-up
  company, you probably want to wait for a secure
  situation. The last thing you want is to saddle
  up with a mortgage and then find yourself
  unemployed, or underemployed.
• Are you going to be around for a while?
• Again, we cant tell the future, but youll want
  to be sure that you can stay in your home for a
  minimum of five years. If you expect to get a job
  transfer within a few years, you may end up
  paying money in order to sell it. Youll want to
  make sure your home value increases enough to
  cover the costs to sell your home.
• The length of time that it will take to cover
  those costs depends on various economic factors
  in your area. Currently in Maryland were seeing
  an average of 3-5 appreciation per year. This
  is considered normal and healthy and will cover
  buying and selling costs in about five years. If
  the area you buy your home in experiences an
  economic up turn, the length of the time to
  cover these costs could be shortened, and in the
  unfortunate circumstance of an economic
  downturn, the opposite is also true.
• How long will the home meet your needs? What
  features do you require in a home to satisfy
  your lifestyle now? Five years from now?
  Depending on how long you plan to stay in your
  home, youll want to make sure that the home has
  the amenities that youll need. For example, a
  two-bedroom home may be perfect for a young
  couple with no children.
• However, if they start a family, they could
  quickly outgrow the space. Therefore, they
• should consider a home with room to grow. Could
  the basement be turned into a den and extra
  bedrooms? Could the attic be turned into a master
  suite? Having an idea of what youll need will
  help you find a home that will satisfy you for
  years to come.
• Are you ready for the responsibility?

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There are costs and responsibilities with
homeownership that most renters are not
accustomed to, things the landlord took care of.
Home insurance, home maintenance and repair,
appliance replacement, and home maintenance and
repairs are all important considerations. Most
experts suggest you save 1 of your homes value
every year. Saving for long-term projects, like
replacing the roof or the HVAC system, will save
you the emergency of the cost of replacement
when there is a sudden breakdown of a major
system, or the inevitable replacement because of
age. Your home is probably the most expensive
purchase you will make in your lifetime. It is a
place to build your nest, both figuratively and
literallyyour financial nest egg. You will want
to take care of the maintenance of your home
regularly to maintain its best value throughout
the years you own it. Is This the Right Time to
Buy a Home in Berkley property management? Once
you have crunched all the numbers, considered
your financials and future employment, the
decision is really about lifestyle. For most
Americans home ownership is the most likely
method to build wealth. It is also the way to
create a lifestyle that best suits you and your
family. Those intrinsic desires are best
accomplished in your homepaint the walls the
way you want, plant a garden, get a swing set,
and enjoy the freedom to build a nest, both
financially and metaphorically. Rent vs buy
explaining housing affordability, we hope it
helps with your plans!