A Guide to Affordability for First-Time Homebuyers in Today’s Market

Posted by Nora Lopez on Thursday, August 3, 2023 at 1:50:35 PM By Nora Lopez / August 3, 2023 Comment

The dream of owning a home is still an important milestone in many people’s lives. However, with the rising cost of living and the ever-increasing house prices, it has become increasingly difficult for first-time buyers to enter the property market. Apart from the struggle to save for a down payment, it is essential to earn a certain amount of money to afford a home today. In this blog post, we’ll discuss what first-time buyers need to earn to afford a home today.

Determine Your Debt-to-Income Ratio

Before you start house hunting and calculating what you can afford, it is vital to determine your Debt-to-Income Ratio or DTI. This ratio measures your monthly debt payments to your gross monthly income. Ideally, your DTI ratio should be less than 43% to qualify for a mortgage. However, if your DTI ratio is higher, lenders may be hesitant to lend you the required amount. To keep your DTI ratio low, work on paying down your existing debt and increasing your income before applying for a mortgage.

Save for a Down Payment

Saving for a down payment is one of the most critical factors in being able to afford a home today. Depending on your location and budget, you may be required to put down a down payment of up to 20% of the home’s purchase price. For example, a first-time buyer looking to buy a $250,000 house will need to save $50,000 or more for a down payment. To help you save for a down payment, create a budget, cut back on unnecessary expenses, and channel your savings into a high-interest savings account.

Determine Your Affordability

When looking to buy a home, it’s essential to determine what you can afford. A useful rule of thumb is to keep your monthly housing expenses to less than 28% of your gross monthly income. For example, if you earn $60,000 per year, your monthly housing expenses should be no more than $1,400. Keep in mind that your monthly expenses will also include other expenses like utilities, property taxes, and insurance.

Consider Your Credit Score

Your credit score is another critical factor that lenders consider before approving a mortgage application. A good credit score is an indicator of your financial stability and ability to repay loans. If you have a low credit score, focus on improving it by paying your bills on time and reducing your debt-to-income ratio. A higher credit score will also help you qualify for better interest rates and save you money in the long run.

Location Matters

Finally, when it comes to buying a home, location matters. Home prices can vary significantly depending on the neighborhood, proximity to schools, transportation, and other amenities. Before you start house hunting, research different areas to see what fits your budget.

Owning a home is still a vital part of the American dream. But, with today’s rising living costs and increasing real estate prices, it’s challenging for first-time buyers to achieve that dream. To have a chance at affording a home today, determine your debt-to-income ratio, save for a down payment, determine your affordability, consider your credit score, and research different areas. By following these tips, you will be well on your way to owning your dream home, and the payoff will be worth it.

NORA LOPEZ

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