home buying

What to Do When You Can't Afford Your Housing Market

7 Minute Read

Thinking about buying a home, but frustrated by rising home prices in your community?

You’re not alone. According to a quarterly survey from the National Association of Realtors, 67% of renters believe that home prices in their area have increased over the past 12 months.

And research supports that claim. ATTOM Data Solutions reports that more than 1 in 4 housing markets is now less affordable than its historical norm.

When you’re saving up for a down payment and thinking through your financing options, seeing rising home prices only intensifies the pressure. It’s tempting to pursue creative financing options or justify spending more than you can afford just to secure a house.

But before you dive headfirst into financial disaster, know you have other options besides stretching your budget. Here’s how to find a home in your area that you can afford, even in a hot market.

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Define Your Home Price Boundaries

Let’s start by setting some boundaries for your finances. Before you can evaluate your options, you have to know your home-buying budget.

How much home you can afford should be based on your unique financial situation, not the pressure of your housing market.

If you can’t pay cash for your home, the next best option is a home mortgage loan done the right way. What does that look like? We recommend these guidelines:

  • You choose a 15-year fixed-rate conventional loan.

  • Your monthly mortgage payment is no more than 25% of your take-home pay.

  • You put at least 10% down, but 20% is even better!

  • You have enough cash to cover closing costs and moving expenses.

Our mortgage calculator makes it easy to see what you can afford. A lender will probably approve you for a higher amount, but remember: just because you qualify for it doesn’t mean you can afford it.

If you’re married, make sure that you and your spouse are on the same page. Once you know what affordability looks like for you, share your boundaries with your real estate agent and don’t budge. When your housing market is more expensive than your budget allows, here are three options to consider:

Option #1: Save Longer

Let’s cut to the chase. If you live in an unaffordable market, it will probably take you longer to be financially ready to buy a home.

Maybe you’re still trying to pay off debt or save up a down payment. But even if you’re debt-free with an emergency fund in place, you might live in an area where your income truly can’t support the price of a mortgage. And that’s okay. Renting helps you build up your savings and patience. Plus, you get to call the landlord when something breaks instead of spending your hard-earned money to fix it!

If you want to buy a home in an expensive market, waiting may be your smartest move. And in the meantime, you can keep saving and trying to increase your income. Your area may seem more affordable three years from now when you have a hefty down payment saved and more money coming in every month!

Option #2: Reset Your Expectations

Another option if you live in an expensive housing market is to revisit your criteria. A remodeled four-bedroom craftsman home on an acre lot might be out of your price range, but a ranch-style home that needs a little work may be the perfect fit.

It may be tough to give up a luxury kitchen or gleaming hardwood floors, but it’s worth it to avoid getting in over your head. Remember, you can always upgrade your home’s features down the road.

Consider these factors to be sure you’re making a smart investment:

  • Don’t buy the most expensive home in the neighborhood. Instead, try to buy the least expensive home in the best neighborhood you can afford.

  • Pay attention to home values around that area. Are they going up or down?

  • How are the schools in your area? Even if you don’t have kids, that could be an important factor when you sell.

  • Get a home inspection once you’re under contract so you don’t get blindsided by expensive repairs.

When you work with a real estate pro to get your expectations in line with what you can afford in your area, you may be surprised to find out that you still have some great options!  

Option #3: Broaden Your Search

If you live in a big city, home prices usually get more affordable if you’re willing to live outside the metro area. According to a recent study by Zillow and Care.com, the national median property taxes and mortgage payments on an urban home are $7,000 more a year than a home in the suburbs.

In places like New York City, the difference between city and suburb living can be astronomical, costing the average family $6,000 more every month to reside in the city, as reported by Zillow and Care.com. But the reverse can also be true. In some areas like Philadelphia, it’s actually cheaper to live in the city than it is to pay for housing in the suburbs.

You may be stuck in a market where home ownership will always feel a little out of reach. But if you’re open to moving, relocating can fast-track your home-buying dream. For example, cities like Madison, Wisconsin; Columbus, Ohio; and Omaha, Nebraska, have led the way in home affordability for young professionals over the past year, and that trend will continue, experts at Realtor.com predict. 

Want the scoop on home prices in your area? A real estate agent can give you advice about how to target your search to areas that you can afford.

Hunting for a Home? You Need a Pro

One the biggest factors affecting home affordability is a shortage of homes for sale. According to research published by Realtor.com, housing inventory in the top 100 metros across the U.S. is down an average of 11%. Low inventory increases the competition over the available homes, which contributes to rising home prices.

Not only is it tough to find a home you can afford, chances are you’ll be up against other buyers when you do. Don’t leave your biggest investment in the hands of an amateur. Here’s why you should work with a pro:

  • A real estate pro will often know about properties before they hit the market, giving you a competitive edge.

  • They will share knowledge about your local market so you have realistic expectations as you look for your perfect home.

  • A true pro is an expert negotiator and knows how to get you the best deal on a home even in a hot market.

  • They will handle the details of paperwork and closing so that you get across the finish line with as little stress as possible.

Our real estate Endorsed Local Providers (ELPs) sell at least 35 homes per year, more than three times as many as the average real estate agent, according to the National Association of Realtors. A real estate pro can help you explore your options and come up with a home-buying plan that works for you.

Find a real estate ELP in your local market today!

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