What do you do when you can’t afford to buy the house you want?
This chart shows interest rates for a conventional loan, 30-year fixed rate and 15-year fixed rate.
You can see that today, a 30-year fixed rate is 5.25%, the highest it’s been in the last 10 years.
This is causing some home buyers to lose their preapprovals. The loan they could afford at 4% they cannot afford at 5.25%.
When you cannot qualify for the home you want, here are some concessions you might consider making:
- Give up some space.
What can you live without for now? Maybe a second bathroom or additional bedroom is a “want” but not a “must.”
- Give up some amenities.
Everyone wants hardwoods throughout and granite countertops. Those are luxuries a first-time homebuyer can live without.
- Look in a less pricy neighborhood.
Less desirable neighborhoods become more desirable when they are the only affordable locations. More professionals move in and clean up their properties, raising the value of real estate. A low-price neighborhood can be a place to start (assuming it is not too dangerous for your family).
- Buy farther from the city.
With more employers allowing work-from-home, more people are able to buy outside city limits where decent starter homes are not priced ridiculously high. Maybe a change of scenery would be welcome anyway.
- Look at a condo or townhome.
You might consider a condo as a way to get started in owning real estate. The tricky thing about condo buying is that there is also a Home Owners’ Association with monthly HOA dues, so you want to make sure the dues are reasonable. Find out what the HOA budget looks like (to check for pending litigation and that there are reserves to cover things like future painting or roofing) and what the rules are (such as if pets are allowed).
Even though rates have topped 5%, they are still a lot better than the days of 10% – 16% rates. So don’t let 5% discourage you from becoming a home owner. Be aware and tailor your desires to your budget.
ALWAYS get preapproved in writing before you go house shopping. You need a solid Preapproval Letter in hand from a mortgage broker (preferred) or bank.