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 prices in your community?

You’re not alone. In fact, 61% of renters believe home prices in their area have increased over the past 12 months.(1)

And it’s no wonder since research supports that claim. Today, 4 in 10 housing markets are less affordable than they’ve ever been—an increase of 17% since 2017.(2)

When you’re saving up for a down payment and thinking through your financing options, rising home prices can increase the pressure. It’s tempting to pursue creative financing options or justify spending more than you can afford to secure a house. But don’t do something dumb!

Before you dive headfirst into financial disaster, know you have other options that don’t include stretching your budget. Here’s how to find a home you can afford, even in a hot market.

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Define Your Home Price Boundaries

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 financial situation, not pressure caused by the rising prices in 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:

  • Choose a 15-year fixed-rate conventional loan.

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

  • Put at least 10% down—but 20% is even better!

  • Pay for closing costs and moving expenses with cash.

Our mortgage calculator makes it easy to see what you can afford. If you’re married, make sure that you and your spouse are on the same page. Then be prepared: A lender will probably approve you for a much higher amount, but just because you qualify for more money doesn’t mean you can afford to take it!

Once you know what affordability looks like, share your boundaries with your real estate agent and don’t budge.

It’s possible that after you create your home-buying budget, you’ll find your housing market is more expensive than your budget allows. But don’t freak out just yet. Here are three options to consider:

Option #1: Save Longer

Let’s cut to the chase. If you live in an unaffordable market, it’ll 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 home-buying budget can’t support a mortgage just yet. 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. In the meantime, keep saving. Your area may seem more affordable three years from now when you have a hefty down payment saved!

Option #2: Reset Your Expectations

Another option 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 house that needs a little work could be a perfect financial fit.

It may be tough to let go of the idea of having 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 keeping your expectations in check:

  • 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? (You want those values going up!)

  • What are the schools like 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, you may be surprised to find out you still have some great options!

Option #3: Broaden Your Search

You may want to live in the city or perhaps you have your eye on suburban life, but broadening your search might change your mind about where you actually want to be.

Home prices are usually more affordable outside the metro area. Nationally speaking, a house in the city is about $7,000 more a year than one in the suburbs. But in places like New York City, a family can pay up to $6,000 more every month—yes, a month!—to reside in the city instead of the suburbs. 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.(3)

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. Young professionals are embracing this new reality. They’re buying homes in small or midsize cities in the Midwest, South, and Southwest—like Ogden, Utah; Des Moines, Iowa; and Baton Rouge, Louisiana—where they can get the most bang for their buck and save up for a down payment in less time.(4)

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 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. Housing inventory levels across the country are down this year after a 7% drop in the number of homes for sale.(5) Low inventory increases competition over the available homes, which contributes to rising home prices.

Not only is it tough to find a home you can afford, but 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 so you can close on your house with as little stress as possible.

Our real estate Endorsed Local Providers (ELPs) are selected from the top real estate pros in your area—and they’re experts in your local market. You can trust an ELP to 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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