It's a¬†great time to buy a home.
Home prices have climbed more than 5%¬†annually for the second straight year, but today's mortgage rates are still low, and homes are still affordable.
But what will happen¬†through the end of 2016¬†and into the start of 2017? Likely, a drop in home affordability.
Home prices are expected to keep climbing, and mortgage rates aren't expected to stay in the 3s for long.
So, what should you do if you're on the fence about buying?
Should you wait out the market for another 12 months, and hope you're in a better position to buy next year? Or, do you¬†buy a home now, even though you may not be completely ready to do so?
There's no¬†"right answer", but one things's nearly certain --¬†the best deals you find in housing may be the ones you find today.¬†By this time next year,¬†buying a home could be an expensive proposition.Click to see today's rates (Dec 10th, 2016)
Each quarter, the National Association of Homebuilders (NAHB) attempts to measure whether U.S. homes are "affordable" for the typical U.S. household.
The group measures median household incomes within 225 metropolitan areas nationwide and -- using average 30-year fixed rate mortgage rates -- determines whether these incomes can support the typical monthly housing cost.
The index is¬†known as the Home Opportunity Index (HOI).
In this¬†year's third quarter, the Home Opportunity Index hit 61.4%, which means that more than six-in-ten homes are affordable to households earning a median income. However, affordability rose only because mortgage rates have remained so low --¬†and buyers are glad that they did.
Since the start of 2014, 30-year mortgage rates are down more than 90 basis points (0.90%), which has lowers a homeowner's monthly mortgage payment $217 on a loan at the national mortgage loan limit of $417,000.
Falling rates and payments helps a borrower's¬†debt ratio requirements;¬†and,¬†can mean the difference¬†being mortgage-qualified to purchase a home, and not.
But mortgage rates are climbing, and affordability is threatened.¬†Analysts expect rates to start 2017 considerably higher than they are today.
Home prices are expected to rise, too.Click to see today's rates (Dec 10th, 2016)
Home prices are up close to six percent from last year. This affects a buyer's potential monthly payment; and raises¬†the down payment required to purchase a home.
It can be tough enough to¬†scrape together a down payment -- especially for buyers putting 20% down on a home. But, not everyone wants to do that.
Thankfully,¬†low- and no-downpayment loans¬†remain readily available.
Home buyers can choose from among the¬†Conventional 97 and the HomeReady‚ĄĘ home loan, each of which¬†requires three percent down; the FHA loan, which requires 3.5% down; and the VA and USDA loans, which require zero money down.
The Conventional 97 mortgage is mostly used by buyers with better-than-average credit who are purchasing single-family homes to "live in"; and the¬†3% down¬†HomeReady‚ĄĘ home loan is geared at buyers in lower-income census tracts.
Both programs, however, are limited to $417,000,¬†so buyers in "high-cost cities" should consider either putting five percent down, or a different low-downpayment option.
One such option is the FHA loan, which allows for a downpayment of just 3.5% and allows buyers to finance¬†any¬†home which will be their primary residence, so long as the home is a single-unit (e.g.; a house, a town home, a condo) or a home of up to 4 units.
FHA loan limits are higher than what's allowed by the¬†Conventional 97 and¬†HomeReady‚ĄĘ, ranging up to $625,000.
Another option for buyers making a small downpayment is no-money-down VA loan. Available to buyers with military experience, the¬†VA Home Loan Guaranty program¬†never charges mortgage insurance and mortgage rates are typically the lowest of all loans available.
Lastly, note that¬†there's another no-money-down loan -- the¬†USDA loan -- ¬†available to buyers, but the program cannot be used in a "big city" markets. It's use is relegated to¬†buyers in the exurbs and in less densely-populated suburban neighborhoods.
Ask for these loans with any U.S. lender.Click to see today's rates (Dec 10th, 2016)
For buyers in search of affordable homes, differentiation must be made for "big markets" and "small markets".
Small markets are often more affordable than big markets; and homes¬†along East Coast and West Coast are¬†often least affordable.
It should be no surprise, then, that many of the¬†Most Affordable U.S. Housing Markets are in the Midwest, spread throughout Ohio, Michigan, Iowa and Illinois.
Last quarter, the country's most affordable small-ranked city was Fairbanks, Alaska.
97.7 percent of homes in one of the most northern U.S. cities were¬†affordable to families earning the area's median income of $93,800.
Fairbanks also had the highest income of any of the next 75 most affordable cities on the list.
Meanwhile, in the Big Market category, Elgin, Illinois took top honors with 94.3 percent of all homes affordable to families earning the area's median income of $82,500.
Overall, the Midwest ranked highly for home affordability.
On the opposite end of the affordability scale sits San Francisco, dead-last on the list of Most Affordable Cities. Less than 10 percent of median income earners can afford a home,¬†under NAHB's conditions.
But that's no surprise. The Bay Area has been ranked the Least Affordable place in the U.S. since the fourth quarter of 2012. Before that, New York City took the title for most expensive city each quarter back to 2008.
The most surprising point of the NAHB study, however, is the comparison between another California city -- San Diego -- and what is perceived to be one of the most ridiculously high-priced areas in the country: Honolulu, Hawaii.
But urban Honolulu is twice as affordable as San Diego, according to the report, with 40 percent of homes affordable to median income earners.
The median sales price in Honolulu is $525,000 -- not cheap by most measures. But median income rises to the task, coming in at nearly $90,000, and one¬†of the highest income readings on the list.
In San Diego, though, home prices are only slightly lower, at $494,000.
But a median-income family earns just over seventy-three thousand dollars annually.
The comparison of two cities reveals the importance of income when it comes to affordability. Home buyers should not necessarily avoid relocating to an "expensive" city, if their income will justify the move.
Conversely, families should examine earning potential before moving to a "cheap" area.
When thinking about a relocation, the NAHB Housing Opportunity Index just might be the first resource you consider.
Home prices are rising and so are national rents. You may not be ready to buy a home today but, by next year, the the affordability of homes is expected to be worse.
Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see today's rates (Dec 10th, 2016)
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2016 Conforming, FHA, & VA Loan Limits
Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)