Mortgage Basics | Housing Affordability in 2022
Buying a home can seem like a complex process, requiring extensive research to determine the best fit for you. Not only is the house itself extremely important, but so is the price tag. It can be tough to get a clear picture of the affordability and property value of a home. Luckily, housing affordability comes down to three simple principles. Keep reading to find the easiest method for determining housing affordability in 2022.
Wages
The first factor is wages. Average household income and income per capita are the two most important metrics for those trying to estimate how affordable homes are in a given area. If the average household income in a given area does not qualify the majority of households to buy a home there, it is safe to say that housing is not affordable in that area. This also means that many of the people buying homes there are from out of state. Therefore, it would be ideal for local real estate companies to advertise to those outside of the area, since it is less likely that those already in the area could qualify to buy a new home there.
Prices
The second factor is the actual price tag on homes in the area. What is the average purchase price of homes in the area? Is this average going up or down year to year? The answers to these two questions will determine both the quality of the living area as well as the ideal time to sell or make a purchase. If prices are falling, it may be smart to wait a year or two to purchase a home there for a cheaper price. Mortgaging a home for a lower price leaves more funds available for making additions or repairs to a newly purchased property. If prices are rising, it is best to act quickly before your dream home exceeds your budget.
Mortgage Rates
Last, but not least, is the mortgage rate factor. Unlike the purchase price, your mortgage rate is the actual amount you will be paying each month for your home. Not everyone has the luxury of buying a home outright, so calculating your mortgage rate is key to managing your new home’s finances.
Most banks have 8, 15, and 30-year mortgages. Naturally, the lower the number of years, the more you will have to pay each month. Keep in mind that mortgages are subject to interest rates as well since it is a loan. Explore a variety of loan options before making a decision on a property. Find out what the mortgage rate will be with different banks at different lengths of time for the loan. This will enable you to make a well-educated approximation of the affordability of a property before making an offer.
Housing Affordability Index
All 3 affordability factors come together in the Housing Affordability Index. This index is the metric that defines how affordable a home is for those in the area. For example, a housing index of 100 or greater means median income households in an area make enough money to qualify for a median-priced home there. An index of 120 means that the median household income is 20% more than the median price of homes.
Acquiring the housing index numbers for an area is the best way to make sure you are moving to an affordable location. Combine this knowledge with knowledge of your own personal finances and you will be well on your way to mortgaging a home at a price that makes sense for you.
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* Specific loan program availability and requirements may vary. Please get in touch with the mortgage advisor for more information.