Can I Actually Buy a Home? A Financial Readiness Assessment.

Owning a home is a dream many have. It represents freedom, stability, and financial prosperity. However, this dream can often feel unattainable, especially for younger Millennial and Gen Z buyers. Rising interest rates and higher mortgage payments put more strain on already tight budgets, and limited housing options and fierce sales competition have forced many buyers to adopt new strategies.

Frustrated by the current home-buying climate? Wondering if now is a good time to buy a house? You are not alone in your uncertainty. Our team members at United Bank know how you feel. Read on to hear their thoughts on the housing market, the possibilities and the challenges.

We spoke to some of our employees at United Bank who are in various stages of buying, selling or owning their first homes. They weighed in on the prospects of this process for younger generations. Investment Analyst Rafael Rivera, Product Marketing Specialist Ali Sansalone, Talent Acquisition & Recruitment Specialist Kimi Roper, and Credit Analyst Victor Jimenez shared these thoughts:

Question: Do you see your parents' generation as having an easier homeownership path? 

Rafael: Yes, the path to homeownership has never been more difficult than it is today. Adjusted for inflation, average home values have jumped 118% from 1965 to 2021, while incomes have risen only 15% over the same period. Additionally, supply constraints, increasing demand, and recently tightened credit conditions have all contributed to the challenges of buying a home. Did my parents have an easy path to homeownership? No, but it's fair to say that purchasing a median-priced home today is more challenging on a typical household income.

Victor: This question, for me, is a little different. My parents moved here from Mexico, and for the most part, buying a home was never really on the radar for them. They spent most of their time working two jobs, and it was not until now that they are finally thinking of buying a home, which, given what we know now, would have been easier for them to do when they were in their 20s than today.

Question: How do you think your financial situation and life goals compare to older generations when it comes to buying a house?

Kimi: I am fortunate enough to be in a better financial situation than my parents were at my age. I have comparable life goals to what they had at my age. I am happy to say I accomplished my goal of buying a home, and I did so much earlier than my parents did. However, even though I earn more than they did at my age, the size of the house I was able to get with my current salary is even smaller than what my parents were able to afford while earning less.

Rafael: Due to the state of the dollar's strength, inflation, and generational decline in purchasing power parity (PPP), my life goals have been extended further than those of my parents. I would love to have children, a dog, and a two-story home, but the housing market has become increasingly out of reach for not just me, but so many.

Victor: When my parents were my age, their financial situation was not the best as they were working two jobs, ranging from being cooks at a restaurant to cleaning houses. They were making ends meet and trying to do their best to take care of their three children. Today, they would be in a much better position to do that as both of my parents now own their own businesses.

Question: Beyond the rising interest rates, what are your biggest financial worries when it comes to buying a house? Is it the down payment, the ongoing maintenance costs, or the long-term commitment of a mortgage?

Ali: I think the obvious one is inflation. We have all seen the effects inflation has had on the cost of just about everything, including the price of a home, which has increased exponentially. Simply put, dollars don’t stretch as far as they used to, and that causes financial worries. Not only do you have to worry about the price of the home and the monthly payment, but you also worry about everything else that comes with being a homeowner — down payment, insurance, taxes, maintenance, etc.

Victor: Surprise maintenance expenses and fear of the unknown. What if my budget did not consider an expense that is associated with homeownership that I did not know existed? FHA loans provide a lot of flexibility in terms of the down payment. The ongoing maintenance costs would be the greatest concern here. What if the A/C breaks in the middle of the summer, followed up by the water heater and not being able to call on a property manager to fix the problem?

Kimi: Having bought a home right before the high-interest rate environment we are currently in started, I was shocked to find out how expensive it was even then. I do worry that home prices and associated costs will continue to rise until they become absolutely out of reach for my generation. I feel that you have to be pretty well off to afford a home nowadays. Having recently moved back into an apartment because of relocating to a new state, I’ve found it kind of nice not to have to worry about associated costs like HOA fees, repairs, insurance, property taxes, etc. While I consider myself lucky to be able to have already bought and now be selling my first home, I understand why more and more people are waiting.

Question: Does the current lack of available houses make you hesitant, or are you waiting for prices to potentially stabilize before considering buying?

Ali: I think it causes a bit of a larger hurdle, but I wouldn’t say it makes me hesitant. Personally, I think the best thing you can do is stay active in the market and be prepared financially when the time comes. Although inventory and rates are not at their prime, occasionally, you will see “good deals” pop up on the market, and I think you just have to be ready when you see one.

Victor: This is a concern; I think everyone has an idea of their dream home in the dream location, but what if the market does not allow that? With the number of people moving here to Charleston, SC, it seems as if house prices increase daily and push my budget further and further out of the downtown area.

Kimi: My husband and I are thinking more about selling our current house than buying a new one. I don’t think we will buy another home for a while. This has more to do with not knowing where we will end up permanently (and embracing that!) Furthermore, we are excited about the idea of not being tied down to a property. That being said, we wouldn’t be able to afford a home in the D.C. area anyway!

As the responses from our team members show, there is a lot of uncertainty when it comes to the home-buying journey. However, there are steps you can take to determine if your finances are in a place to make that leap.

Your Income and Expenses

The first step in assessing your financial readiness for homeownership is to evaluate your income, expenses, and debt. It is particularly important to understand your debt-to-income ratio, which compares what you must pay monthly in debt payments to your gross monthly income. Lenders use this key indicator to determine your ability to manage future mortgage payments.

Some advice from our Mortgage Loan Officers - while every program is different, the general rule is that your total monthly expenses should be no more than 43% of your gross income. Within that 43% is all loan and credit card payments, along with the new house payment.

Your Savings

The next step is to evaluate your savings and calculate your down payment, which you can do using our Mortgage Calculator. While first-time homebuyer grants and loans can help cover your down payment and closing costs, you’ll still need these funds on hand. It’s also essential to have a safety net for unexpected costs like emergency repairs and renovations. You can find more tips on building your savings here.

Your Credit Score

Your credit score plays a significant role in qualifying for loans. A higher credit score can lead to better loan terms and lower interest rates, saving you thousands in the long run. Our team recommends that buyers obtain a copy of their credit report directly from a credit bureau, or they can order a free copy online, to see if there is anything negative they can remedy before applying for a mortgage.

Exploring Affordability: Understanding Mortgage Options

Different mortgage options have varying requirements and benefits. For instance, Federal Housing Administration (FHA) loans often have lower down payment requirements, which is an excellent option for first-time buyers. Conventional loans, however, may require a higher credit score but can offer better terms. A mortgage officer can help you understand your loan options.

Before deciding on a loan, however, it’s critical that you understand the current state of interest rates. The impact of higher interest rates on monthly payments cannot be understated. Mortgage rates have increased from approximately 4% to 7% over the past five years. On a $200,000 mortgage with 20% down, a 3% difference in the interest rate means paying nearly $300 more per month. Over 30 years, this can amount to over $108,000 in additional interest.

Consulting with a Mortgage Lender

United Bank mortgage loan officers are backed by 185 years of financial experience. Consulting with a mortgage lender for pre-approval not only helps you understand your financial standing and what you can afford, but it also signals to sellers that you are a serious buyer taking steps toward homeownership.

Homeownership is Possible

Homeownership is achievable with planning, smart spending, and a bit of creativity. By assessing your financial readiness, exploring your mortgage options, and consulting with a lender, you can move closer to making your homeownership dream a reality. Taking the time to understand your financial position can help you better prepare for the homebuying journey ahead. Contact a United Bank mortgage loan officer.