Rent Vs. Buy – Explaining Housing Affordability

1. Rent Vs. Buy – Explaining HousingAffordability 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 housingaffordability. 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 of2017.” How is the HOIcalculated? The housing cost calculation takes into consideration the price of homes and the interest rate. Today’s 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 comparedto

2. historical rates, which average around 7 percent. To understand the impact ofinterest rates on affordability, read this handy chart: Interest Rates and HomeAffordability. 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 mortgagecosts. Should I Rent or Buy in Berkley property management? Given the fact that Berkley property managementis very affordable, compared to metropolitan areas nearby, and given the fact that home values are on the rise, let’s establish that it is generally a good time to get into homeownership. The real questions you must answer are about your personalsituation. 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 tobuy: 1. Do you havesavings? 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 savingsmay

3. not prevent you from buying a home but it is a strong indication that you may not be prepared for the ongoing financial requirements ofhomeownership. 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 beprepared. 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 eachlender. 2. How much debt do youhave? 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 mortgageshave a maximum back-end DTI ratio of 43%. The back-end ratio takes all your debt intoaccount. 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 takenout.

4. If you are thinking about a home purchase you’ll want to plan ahead to minimize your debt. You’ll want to consider foregoing a new car purchase. You’ll want to pay down your credit cards and pay off somedebts. 3. How is your creditscore? 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 notgood. 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 minimumscore. 4. Is your employment situationsteady?

5. While we can never predict the future, you probably have a sense of your job or business security. If you’re 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 awhile? Again, we can’t tell the future, but you’ll 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. You’ll want to make sure your home value increases enough to cover the costs to sell yourhome. The length of time that it will take to cover those costs depends on various economic factors in your area. Currently in Maryland we’re 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 alsotrue. 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, you’ll want to make sure that the home has the amenities that you’ll need. For example, a two-bedroom home may be perfect for a young couple with nochildren. 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 you’ll need will help you find a home that will satisfy you for years tocome. Are you ready for theresponsibility?

6. 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 home’s 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 ofage. 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 literally…your 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 ownit. Is This the Right Time to Buy a Home in Berkley propertymanagement? 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 home…paint 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 yourplans!