Home Affordability and Home Prices

Can you afford to buy a home? Many households and especially millennials are pushing off their home purchase, due to financial concerns and changing lifestyles. Owning a home is often considered to be the American Dream. Did you know that homeownership rate dropped from 69% in 2004 to just 62% in Quarter II 2016? However, since the beginning of 2017 homeownership rates are rising.

Will homeownership have a comeback in 2018? One of the main problems is the lack of supply and rising home prices. According to CoreLogic Chief Economist, Frank Nothaft:

Entry-level homes have been in particularly short supply. ...Thus, first-time buyers are facing acute affordability challenges in high-cost areas

Home prices peaked in 2007 and then plummeted. According to the national Case Shiller HPI, home prices are above pre-Great Recession levels. However, home prices and trends vary very much from area to area. Don’t forget to research and shop around for a home.

Qualifying for a Purchase Mortgage

To buy a home, it takes two to tango. Both you and the mortgage lender need to agree that you qualify for a mortgage?

If you want to qualify for a purchase home, mortgage lenders are going to pull out the alphabet soup and ask you about your FICO credit score, DTI, LTV, and your ability to repay the PMT. It can’t hurt your chances to qualify if you brush up on mortgage basics and mortgage terms.

Lenders look at your credit score, credit history, income and the amount of money you pay on your debt, and how much down payment you have. Your credit score is crucial. Although there are many different loan programs and minimum credit scores, many lenders have stricter requirements.

Do you want to improve your chances to qualify for a mortgage? Then, take these actions: Prepare your finances, check out your options, shop around and get prequalified.

Low Down Payment Purchase Mortgage

A common problem for many potential borrowers is the cash required for down payment. What are your options?  Many people rely on gifts, while others look for a down payment assistance program.  Lenders will check your source of funds. If gifted, make sure that you do it the correct way.

But, even if you don’t come up with a lot of cash, there are are many low down payment mortgage loans. One of the more popular purchase loan choices is the FHA loan, which offers up to 96.5% financing. That means if you purchase a home for $200,000 you will need to come up with a $7,000 down payment.

Another option is a conventional low down payment loan, combined with Private Mortgage Insurance (PMI). Both Fannie Mae and Freddie Mac offer low down payment loans up to 95% LTV. However, they also offer discounted Mortgage Insurance Rates for loans with only a 3% down payment.

If you are low on cash, then shop around and compare all of your offers. For example, FHA loans have lower credit score requirements and often lower mortgage insurance premiums. However, FHA loans have a steep upfront Mortgage Insurance fee (1.75%) and for high LTV borrowers, no cancellation. It is also a good idea to check if you qualify for a down payment assistance program, which can help to cover closing costs.