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 Media Relations Manager Sameera Jordan 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.

Sameera: Absolutely. My mom is technically Generation X, so not as far removed as Baby Boomers, but we definitely had different homebuying experiences. My mom bought her first home when she was 25 years old, so when I was 24 and looking to purchase my first home, she encouraged me to look into the same grants and programs that she used. The difference, however, is that I was making more money than she did when she was my age, so I didn’t qualify for any of those same programs. Even so, the price of homes had gone up so much during that 20-year period that even though I could afford more than she could, as far as bang for my buck, I probably wound up worse off. But it all worked out in the end! I closed on my home the day before my 25^th birthday and was able to celebrate with a move-in party with my family.

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.

Sameera: My mom had two children, student debt, and a job that didn’t pay that well, yet she was able to buy several homes on her own before the age of 30. Meanwhile, I had to get “lucky” to buy a home. My mom always encouraged my brother and I to buy homes young, but she was also shocked to see the realities of buying in this current environment. It’s honestly crazy how much the home market has changed in such a short amount of time. 

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.

Sameera: What I had to learn the hard way as a homeowner is that there are so many other costs that you don’t even think about. I pay a monthly bill for a security system, I pay someone to mow my lawn every two weeks, my utility bills are much higher, I had to buy furniture for an entire house, and it feels like something breaks every other day – and it’s on me to make the repairs. I love having my own house, but the costs of running and maintaining a home are no joke. I thought I’d just move in and find peace, but the financial worries never really end once you buy a home, they just look a bit different. 

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.

Sameera: When I first considered buying a home in 2021, I very firmly told my realtor that I would buy the home that I wanted or nothing at all. I didn’t have a family, and I didn’t need the extra space, so there was no reason to compromise on what I wanted just so I could have a house. But once I started looking into it and learned more about mortgage rates and how they factored into what you pay for your home – and that they were historically low at that time – I did start getting more frantic in my search. When I did get my home under contract and found out there were potential problems during the home inspection that caused me to almost walk away from the home, my realtor and lender both told me that if I didn’t buy this home now, I would most likely never be able to buy in Washington, D.C., at least not anytime soon. And I think that is the reality of homebuying. When rates and prices are low, we sometimes have to make compromises and buy what’s available. But when rates and prices are higher, I think it’s better to be more diligent and wait for the home that you really want. This is a huge financial commitment so if you’re going to put yourself through this, it has to be for something that you really want and that you’ll be happy with for possibly the next 30 years. 

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.