By Robyn A. Friedman
City & Shore Magazine
Despite rising interest rates and slowing home-price appreciation, homeownership remains elusive for many aspiring buyers. According to the National Association of Home Builders/Wells Fargo Housing Opportunity Index, just 42.8 percent of new and existing homes sold between the beginning of April and end of June were affordable to families earning the U.S. median income of $90,000. This is a sharp drop from the 56.9 percent of homes sold in the first quarter that were affordable to median-income earners. Third-quarter data had not been released yet at press time, but with interest rates even higher now, affordability will likely decline further.
“Property prices in Florida are unlikely to drop significantly in the near future,” says Ken H. Johnson, Ph.D., a real estate economist at Florida Atlantic University. “The availability of homes will continue to be a problem for the foreseeable future as more people migrate into the area and construction continues at a slow pace.”
If you’re planning to buy a home in 2023, here are seven strategies you can use to increase your ability to afford your dream home.
Determine what you can afford. Many buyers have no idea how much they can spend on a house until they sit down and crunch the numbers. That’s why Jaclyn Bild, a real estate agent at Douglas Elliman Real Estate in Miami, advises her clients to get pre-approved for a mortgage before they begin their home search. “Most people think they know what they can afford,” she says. “But when they get pre-approved and see what their all-in costs are, that changes very quickly.”
Consult with your lender, your accountant or your financial advisor to review your personal financial situation and to make sure you don’t over-extend yourself with your home purchase. Narrow down which features are must-haves. “Maybe you don’t need updated bathrooms, and you can do that later,” says Chad Bishop, a real estate agent at ONE Sotheby’s International Realty in Fort Lauderdale. “Determine what your dealbreakers are.”
Pay cash. “Cash offers will continue to be moved to the front of the line,” Johnson says. Sellers prefer cash buyers because there’s no chance the deal will fall apart if the buyers can’t qualify for a mortgage.
Improve your credit. If you plan to finance your purchase, pull a free copy of your credit report at AnnualCreditReport.com before you even begin your home search. Credit reports often contain errors, so be sure to make any corrections. You can also improve your credit score by paying down credit card bills or loans. Avoid purchasing a new car or boat, or taking on any additional payment responsibilities before you close on your new home, because that will affect your debt-to-income ratio.
Ask mom and dad to co-sign. Those who lack a lengthy credit or employment history might improve their ability to qualify for a mortgage if their parents co-sign or guarantee the loan. There are risks involved, of course, as the parents will become responsible for payments if the kids are unable to pay. No one should enter into this type of arrangement without frank discussions among the parties about expectations and the ultimate exit strategy for the parents. An alternative way for parents to help out: a cash gift for the down payment.
Expand your search area. Prices remain high in neighborhoods that are highly desirable, such as those with excellent schools or easy access to employment centers. So, consider expanding your search to neighboring communities where prices might be more affordable.
Consider older homes or fixer-uppers. Sure, everyone wants to find a turnkey home at a fair price so they can move right in and start their new life. But in a competitive market like South Florida, those homes are hard to find – and are pricey. By buying a slightly older home, or one that just needs a few cosmetic updates to make it your own, you’ll be expanding the pool of homes to consider.
Wait it out. If you just can’t find a home you love at a price you can pay, think about sitting it out and waiting until housing inventory increases and supply/demand forces cause prices to fall. That’s why FAU’s Johnson suggests that would-be buyers consider renting to avoid paying peak prices. Yes, rents are no bargain either here in South Florida, but if you’re prudent and invest the funds you would have otherwise spent on homeownership – the down payment, homeowners’ association fees, property taxes, insurance, etc. – that is a sound wealth-building strategy, Johnson said.
PHOTO: Blue Rhino Media