How to Navigate the Housing Affordability Crisis
Housing affordability is a huge problem for many people, and it can’t be solved with a quick tip or a magic-bullet answer.
According to Redfin research, just 21% of listed homes in the U.S. are affordable for the average household—“affordable” meaning that the monthly mortgage payment would consume 30% or less of the average person’s monthly income. In fact, the average American would have to spend 42.9% of their income to afford just a median-priced home.
Renters aren’t fairing better, with average rent prices up 18% in the last 5 years—outpacing inflation and placing a heavier financial burden on those who already tend to fall on the lower end of the economic scale. Affordable housing programs exist, but most are overloaded and many have waitlists that are over a decade long.
Many factors play into how expensive it is to get housing, whether you’re renting or trying to buy your own home. The economy, mortgage rates, a physical housing shortage, and the fact that salaries have not kept pace with the rising cost of housing, even if you account for inflation, all play a role. Making housing more affordable across the board would require big, systemic changes. But while you’re working with what we’ve got right now, here are some tips for navigating housing unaffordability.
Ask Your Lender About Options
There are several option when it comes to loan products. One option is proposing to your lender a rate buydown. This is a way for a borrower to obtain a lower interest rate by paying discount points at closing. Discount points, also referred to as mortgage points or prepaid interest points, are a one-time fee paid upfront. In the case of discount points, the interest rate is lower for the long term.
Another option could be Down payment assistance programs. Depending on the area you are purchasing in, you can find grants or low-interest loans, reducing the amount you need to save for a down payment. There are also grants for certain occupations such as Police Officer, Firefighter, EMT, Nursing or Military personnel.
Make sure you are working with a lender that will take the time to explain what's available. Some loan products can be scary at first site or received a bad reputation due to someone you know not fully understanding what the terms of the loan entailed. Adjusted Rate Mortgage (ARM) Loans are a great example. ARMs simply means a mortgage that does not have a fixed interest rate and may change during the life of the loan. There are many types of ARMs, so again, be sure you are working a reputable lender that can advise you on which product would work best for your goals.
Think Outside The Box
Did you know you can buy a multifamily unit for the same price as a single family home? There are duplexes and home with separate living spaces you can rent out to make your mortgage a fraction of the price!
Duplexes give you the freedom to own your own home and live on one side of the house while you rent the other side producing monthly income reducing what you pay out of pocket for the mortgage. And unlike renting, you get to choose who you rent to ensuring a more peaceful living environment for you. Investing in a duplex also gives you the option of living in the duplex and later renting both sides out should you find another great home in the upcoming years.
Look outside your preferred location
This can be as dramatic a change as relocating to a different state or as simple as checking out the neighborhood a few blocks over.
If the cost of living in your city is very high, and you don’t have a lot keeping you there, it could be time to consider a move. This tactic is especially popular with people who work from home and can take their employment with them. Look for cities with a lower cost of housing that also meet your needs in other ways, such as the accessibility of your favorite hobbies, social activities, and lifestyle factors like walkability.
If you want to stay in your current city, try broadening the scope of your search (especially if it’s been narrow). Sometimes looking for a home just a few minutes outside a very popular location can result in significantly lower rental prices, while the convenience isn’t markedly different.
Have An Open Mind
When deciding which homes to go view, have an open mind. Look at the houses that may have one less bedroom or office than what you were hoping. House specs can sometimes fall short of the actual space the home provides.
Look for finished basements or bonus rooms that can be reimagined to fit your needs for the extra bedroom or workout area. Don't pass up a great home based on words alone. Check out all your options as you might just find a home that best suits your wishes that y0u might have missed by not keeping an open mind.
Marry The House, Not The Interest Rate
A number of buyers are purchasing with the intention of refinancing comes down. There are also some lenders who are offering incentives to current buyers to refinance at little or no cost later on.
Marring the house, not the interest rate simply means you are committing to a long term relationship with the house, or even land, you love. But you can breakup or dump the interest rate when and if you refinance later on down the road. The most popular types of refinances are Rate Only or Cash Out.
Should the rates drop, you have the option of refinancing your mortgage. Keep in mind, that some lenders may not be offering the same incentives such as little to no cost to process the the refinance. You might have out of pocket expenses such as an appraisal or closing cost for the loan.
A Cash Out refinance is normally used when you have significant equity in your investment. For example, if you purchased your home for $200,000, it appraises at $250,000, and your currently only owe $150,000 on your mortgage, then your equity could be as high as $100,000. Lenders do have guidelines that you have to qualify for and percentages of total allowed Cash Out on a mortgage. But this is a great option to either do some upgrades to your current home, or pay down debt you might have therefore improving your monthly budget.
Get in touch with an experienced real estate agent
Real estate agents are experts in their local real estate markets, and that means they can help you find what you’re looking for—even when it seems impossible. Look for someone with significant experience in your location and within your budget. Where do you find that info? Check out their website, their reviews, and give them a call. Your local real estate advisor will have a great network they can tap into the find you the home you need.