Buying a home is a significant milestone for many people. However, with rising home prices, it has become increasingly challenging to afford a home. Understanding the factors that affect home affordability can help you make informed decisions when it comes to buying a home. In this post, we will discuss the three influential factors affecting home affordability today.
Income
One of the most critical factors in determining home affordability is income. Your income level directly impacts your ability to afford a home. Typically, lenders look at your debt-to-income ratio (DTI) to determine how much you can afford to borrow. Your DTI is the percentage of your monthly income that goes towards debt payments. As a general rule, lenders prefer a DTI of 43% or lower.
According to the Bureau of Labor Statistics, the median weekly earnings of full-time workers were $984 in the fourth quarter of 2021, which translates to $4,176 per month. Assuming a DTI of 43%, this means that someone earning the median income could afford a mortgage payment of around $1,795 per month.
Interest Rates
Interest rates also play a significant role in home affordability. The interest rate you receive on your mortgage will impact your monthly payment and, ultimately, the total cost of your home. The higher the interest rate, the more expensive your mortgage will be.
As of January 2022, the average interest rate for a 30-year fixed-rate mortgage was 3.31%. However, interest rates are subject to change and can vary based on your credit score, down payment, and other factors. A difference of just a few percentage points in your interest rate can significantly impact your monthly payment and the total cost of your home.
Housing Market Conditions
The housing market conditions in your area can also impact home affordability. When demand for homes is high, prices tend to rise, making it more challenging to afford a home. Similarly, when there is an oversupply of homes, prices tend to drop, making homes more affordable.
According to data from the National Association of Realtors, the median existing-home price for all housing types in January 2022 was $359,500, up 17.2% from January 2021. However, the housing market conditions can vary significantly based on location, so it's essential to research the housing market in your area before making a purchase
In conclusion, buying a home is a significant investment, and understanding the factors that affect home affordability is crucial. At Kwon Home Group, we are committed to helping our clients navigate the complex process of buying a home. Our team of experienced professionals is here to provide expert guidance and support at every step of the way. By working with us, you can rest assured that you'll have the resources and knowledge needed to make informed decisions and find the home of your dreams. Contact us today to learn more about how we can help you achieve your homeownership goals!