Can’t afford to buy a home? Here’s a plan of action to make it work

By JEFF LAZERSON | jlazerson@mortgagegrader.com | MortgageGrader.com | March 04, 2024

Article originally posted in Orange County Register on February 29, 2024.

Home price gains continue to tick up, even with the 30-year fixed mortgage rates hovering around 7%.

The U.S. housing market gained $2.4 trillion in the last year, bringing its total value to $47.5 trillion, according to a Redfin report this week.

“America’s homeowners are sitting pretty. They’re holding a massive amount of housing wealth, despite lackluster demand from buyers, because home values skyrocketed during the pandemic, and now a supply shortage is preventing those from falling,” said Chen Zhao, an economics researcher at Redfin. “Prospective buyers aren’t as lucky. The combination of elevated mortgage rates, high home prices and a limited pool of homes for sale means homeownership is about as unaffordable as ever.”

Zhao said the lone bright spot is mortgage rates should start declining before the end of the year.

After three straight months of gains, U.S. consumer confidence unexpectedly retreated in February, according to the Conference Board Consumer Price Index. Business, employment and the U.S. political environmental were among the concerns of survey respondents, the Conference Board said.

Lower mortgage rates increase affordability. Even so, more home price spikes are likely as buyers jump back into the market. We’ve seen this familiar pattern during the pandemic days.

So, what is a homebuyer to do right now?

Do you still qualify?

First, start by revisiting expectations compared with an actual credit approval. Crunch the numbers with a lender.

Almost everybody I take loan applications from is already stretching to their tippy-toes. Since mortgage rates and home prices have moved up again, it’s worth considering if you still qualify for the same sales price.

If not, what is the new max sales price and loan amount?

Look at the available inventory of homes for sale within this new price range. Can you live with that? Never buy a home out of desperation.

On the other hand, if you can live with it, then go ahead and live with it — even if it’s not exactly to your liking.

Don’t forget about insurance

Your homeowner’s insurance agent should be on speed dial.

Once you find a home that you are considering making an offer on, get an insurance quote. Can you even get insurance for that property? If so, is the cost excessive because it’s in a high fire zone? Access to “affordable” insurance is proving to be too daunting for some.

Consider a relocation

Hard as this might sound, consider moving to another area. If you can’t afford to own a house in Southern California, are you OK being a forever renter? Maybe you’d fare better in another state.

Get a co-signer

Consider partnering with someone to co-own and co-invest.

Ideally, a family member or close friend who is willing to go in with you is a best option should you need more money to qualify or a bigger down payment.

Wait it out

Do none of the above and wait it out.

Maybe lightning will strike … like the doubling of the capital gains exemption from $500,000 to $1 million for married couples. This would provide a lot of motivation for a lot of people to sell their McMansions and cash-out.

Freddie Mac rate news: The 30-year fixed rate averaged 6.94%, 4 basis points higher than last week. The 15-year fixed rate averaged 6.26%, 3 basis points lower than last week.

The Mortgage Bankers Association reported a 5.6% mortgage application decrease compared to one week ago.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $766,550 loan, last year’s payment was $148 less than this week’s payment of $5,069.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with one point: A 30-year FHA at 5.875%, a 15-year conventional at 5.75%, a 30-year conventional at 6.375%, a 15-year conventional high balance at 6.5% ($766,551 to $1,149,825 in LA and OC and $766,551 to $1,006,250 in San Diego), a 30-year high balance conventional at 6.625%, and a jumbo 30-year fixed at 6.625%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $766,550 in LA, San Diego, and Orange counties.

Eye-catcher loan program of the week: A 30-year VA fixed rate at 5.875 at 1 point cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com. His website is www.mortgagegrader.com. 

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* Specific loan program availability and requirements may vary. Please get in touch with your mortgage advisor for more information.