Typical home financing involves a buyer finding a home and applying for a mortgage, getting…
You already know that the real estate market is hot here in Lane County, but is it really the right time to buy a house? What are your best options for financing, and what does it take to qualify? How much house can you afford? Should you buy a single-family home, or invest in a multi-family unit?
When it comes to buying a house, there are many factors to consider. Many are in your control, such as your credit-worthiness and debt-to-income ratio. Several elements are largely out of your control. Interest rates, pricing, and local economy are a few conditions that are fixed, but that doesn’t mean you can’t work around them.
Across the U.S., homes are turning over rather quickly, staying on the market for an average of only four weeks. Here in Oregon, both Portland and Eugene are still experiencing a housing shortage. Homes here are sometimes selling within days or weeks of being listed.
The National Association of Realtors reported that there is an overall decrease in housing affordability in the nation, which stands at 153.0 as of May of this year. That’s up from May of 2016, which was 161.1. Regionally, the West was at 117.8 in May, 2016 and is at 109.2 for May, 2017. (You can view entire report here: https://www.nar.realtor/sites/default/files/reports/2017/embargoes/hai-07-14/hai-05-2017-housing-affordability-index-2017-07-14.pdf)
The NAR report shows there has also been a rise in the percentage of a homeowner’s income that goes towards paying a mortgage. The national average was 15.2% in 2016 and is now 16.3%, with the West at 22.9%.
Finally, there has been a rise in the median home price. The national average as of May this year is $254,600. In May of 2016, it was $240,300. The report shows the median home price in the West at $373,500 as of May. The median home price in Eugene, as of June, 2017, is $272,500.
What does this all mean to you as a potential homeowner? Overall, conditions aren’t as prime as they have been in the past, but they are certainly not bad. One key point to remember is that while interest rates are still historically low, they are predicted to rise. This makes now the right time to buy a house.
Examining your personal resources starts with reviewing your debt load. Most banks and mortgage companies cap that ratio at about 43%. Add up all your expenses, including your new mortgage, and then divide your monthly income into that figure. If your ratio is higher than 43%, then consider which expenses that you can eliminate. Pay down as many credit cards and other loans if you can.
Check Your Credit Report
Your lender is going to check it, so you should check it first. The big three credit reporting agencies are Equifax, Experian, and TransUnion. Consumers are entitled to a free copy of their credit report from each of these agencies once every year. You can pull from them all at once, if you’d like, or you can stagger your request so that you are checking your report every four months. The first thing to look for are errors. If you paid a creditor off, but it’s still on your report, call them to correct the error. Other errors can include information that is not yours, out-of-date information, and former spouse information.
Generally speaking, the higher your credit score, the better mortgage rate you can get. If you have the means, pay down as much as you can on credit cards and other revolving loans. This will lesson your debt load as well as show a strong history of paying your bills on time and in full.
The best way to show a lender that you’re serious about your finances is to offer a large down payment. If you’re able to afford a large down payment, it will lesson your loan-to-value ratio. This will increase your chances of getting the mortgage you want. It also means you can get better loan terms, smaller monthly payments, and pay less interest over the life of your mortgage. Additionally, if you pay 20% or more of the value of the home as a down payment, you won’t be required to purchase mortgage insurance.
Now Is The Right Time To Buy A House!
Look to your future today by shoring up your finances. Lowering your debt load, increasing your credit score, and actively saving for your down payment puts you in the right spot to buy the home you want when it comes to market.