Whether or not you can afford to buy a home in today’s market is a real concern. With interest rate hikes over the past year, many fear their dream of owning a home is no longer a reality. However, interest rates are not the only consideration in determining your ability to afford to buy a home. It is also not the whole truth.
The reality is, rates weren’t the only element to increase. Truth be told, rent prices have risen exponentially over the past few years and statistics show that rent went up 5% over the past year alone. When rent increases to the averages we see now, it definitely becomes more affordable to buy.
Let’s look at the facts:
Rent Café lists the current apartment rental averages for Snohomish County as $1500 per month with an average of 507sq.ft.. This is more than likely a studio, maybe a 1 bedroom if you are lucky. The chances of finding a studio or 1 bedroom in this price is becoming next to impossible. If you want a 2 bedroom, you are looking at $2000± per month. These prices don’t include utilities, deposits or any pet rent and deposits. Worse, that is for a one-year lease and after a year, that is likely to go up again.
More importantly, you are paying someone else’s mortgage and they are growing their equity and investment with your money.
Still think you can’t afford to buy a home?
A search for properties today May 10th, 2023 for homes at or under $425,000 with at least 2 bedrooms and 1+ bathrooms produced over a dozen results in Snohomish County. Yes, inventory is currently very limited, but if you are prepared and looking, you can find something. But can you afford it?
Here is the math:
Example using actual available property with 2 bedrooms, 1.5 bathrooms and approx. 1000sqft for $425000. With a $25000 down payment on a 30-year fixed mortgage at 6.5% interest, you will have a monthly payment of $2875 which includes principle, interest, taxes and insurance. (Contact your trusted lender for exact details pertaining to your circumstance)
Buy a home vs. renting
If you aren’t sure you can afford to pay more than your current rent, practice! If you currently pay $2000 a month in rent and you want to buy a home with a $2875 mortgage payment, pay yourself! Pay the extra $875 each month to a savings account. Not only will you adjust to a budget at a higher amount, you will also be saving more money for a down payment. A larger down payment or extra funds to buy down your interest rate will lower your mortgage payment. It’s a win-win for YOU!
Deciding to buy a home can be intimidating – where exactly do you start? Contact us to find out what is currently available on the market and to work out a plan of action for your success. Contact your trusted lender or ask us for referrals. A trusted lender will work with you to understand what you qualify for and what programs are available to you based on your current circumstances.
Pro-tip #1: There may be down payment assistance and/or first-time buyer options available to you – ask your trusted lender
Pro-tip #2: When interest rates go down, you can refinance at the lower rate and lower your payment. If they continue to go up, you are protected with a fixed rate mortgage.
Pro-tip #3: FHA loan requirements allow for credit scores as low as 580 with 3.5% down and as low as 500 with 10% down.