Housing Affordability Is Its Worst in 40 Years. Here Are 3 Tips to Secure Your Dream Home

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Homes are becoming harder for Americans to afford. Read on to see how you can find a home despite these circumstances. 

It’s hardly a secret that buying a home is expensive. But given that U.S. property values are still elevated and that mortgage lenders are charging a small fortune to finance a home purchase, a lot of people are struggling to break into the housing market these days.

Recent data from Black Knight shows that housing affordability is now at its lowest level since 1984. The monthly payment on a typical home in July took up about 38% of a median household’s income, up from 36.8% a month prior. That’s a notable leap in just one month.

If you’re in the market for a home, you may be struggling with sky-high property values and borrowing costs. But here are a few things you can do to land your dream home even in today’s seemingly impossible market.

1. Don’t just buy the first home that seems acceptable

Not only are homes and mortgages expensive, but real estate inventory is extremely limited. As such, you may be inclined to make an offer on the first home you see that actually falls within your budget. That could end up being a mistake, though.

Unless you’re truly in a desperate situation (such as your lease running out with no renewal option and there being no affordable rentals anywhere in your neighborhood), you don’t want to rush through the process of buying a home. And if you go with the first property you can categorize as acceptable, you might end up missing out on another home that has more of the features you want.

Remember, you may not realize what features you really want out of a home until you look around and see what’s out there. So try to be patient when searching for a home, even if that means having to wait a bit longer to purchase a place of your own.

The good news is that mortgage rates aren’t really expected to skyrocket in the coming months, namely because they’re already quite elevated. That doesn’t mean they won’t rise a little. But in the grand scheme of things, it’s not worth rushing the home-buying process to potentially lock in a mortgage at 7.18% instead of 7.28%.

2. Be willing to compromise

We just talked about not jumping on the first suitable home you come across. But you also don’t want to get too picky with details at a time when housing is so expensive and inventory is so limited.

Rather than make a wishlist with 17 line items, divide your preferred home features into two categories — “must have” and “want to have.” Then, aim to keep your “must have” list to four or five items and focus on checking those boxes off when you do your house-hunting.

You’ll of course want to be able to check off as many “want to have” items as you can, too. But if you have five “must haves” and you’re able to get them all from a given home, that should be what matters most.

3. Make sure your can handle your monthly housing costs

A home that offers every single feature on your wishlist that you can’t actually afford isn’t your dream home. You might think it is, but you might soon realize after the fact that it’s far from it.

As a general rule, your predictable monthly housing costs should not exceed 30% of your take-home income (meaning, your paycheck after taxes and deductions). Sure, there’s some leeway with this guidance, such as if you’re moving to an area where you don’t need a car. In that case, spending 35% to 40% of your pay on housing is reasonable because you’re not covering another major expense that most people have to bear.

But for the most part, try to make sure that your monthly mortgage payments, property taxes, homeowners insurance costs, and HOA fees, if they apply to you, are limited to 30% of your pay or less. If you go beyond that point, you might quickly fall behind on housing costs as well as other bills. That could make for a very stressful situation.

Home affordability may be in the pits right now, but that doesn’t mean that finding your ideal home is off the table. It just means you need to be careful with your search, set priorities, and run the numbers carefully to avoid getting in over your head.

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