Many people who have been trying to buy a home are pretty discouraged at this point. And that’s totally understandable. Not only are home prices elevated to start off 2024, but mortgage loans remain expensive to put into place. The record-low rates mortgage lenders were offering in 2020 and 2021 are, at this point, long gone and unlikely to return in the near term. So all told, buying a home in 2024 is shaping up to be an expensive prospect.
It’s therefore not so surprising to learn that 70% of Americans think it’s unrealistic to buy a home this year, according to data from IPX1031. And 63% say they can’t afford to buy a home this year.
You may, at this point, be in a similar place. But rather than write off homeownership this year, think about the steps you can take to make it work given the state of the real estate market today.
Compromising could be your ticket to homeownership
When you’re talking about a purchase as monumental as a home, you can really only psych yourself up to compromise so much. After all, if you envision yourself enjoying the privacy of a detached house with a peaceful backyard, you’re not going to want to settle for a townhouse with shared walls and a tiny patio.
But that doesn’t mean there aren’t aspects of a home purchase you can compromise on. And doing so could mean making your dream of homeownership a reality this year, despite the state of the market.
For one thing, you may want to compromise on the state of your home instead of its size. You can’t easily turn a 1,300-square-foot home into 2,300 square feet of living space. But you can finish an existing basement or update a kitchen that’s seen better days.
Another thing you may be able to compromise on is the location of your home. Your heart might be set on a specific neighborhood with lots of amenities, like walkable stores and restaurants. But if you’re willing to move a bit further out, you may find that you can get a lot more space for your money. And the extra 10-minute walk into town is something you might come to appreciate from a daily exercise perspective.
Make sure you’re looking at an affordable home
All told, homeownership may be realistic for you in 2024 if you’re willing to make some concessions. But one thing you can’t compromise on is affordability.
If you can’t swing a home purchase today due to the cost of homes and mortgage rates, then you really should not move forward. Buying a home you can’t comfortably afford could put you at risk of falling behind on bills, wrecking your credit, and potentially having to give up the property you pushed yourself to buy.
So how do you know if a home is affordable? As a general rule, if you’re able to keep your housing costs to 30% of your take-home pay or less, you’re in good shape. So if you can find a home where your recurring expenses like mortgage payments, property taxes, and homeowners insurance costs come to 30% of your take-home income or less, you should know that you’re most likely spending a reasonable amount.
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However, take your personal non-housing expenses into account, too, when crunching your numbers. Maybe you have two kids in a daycare center that costs you $700 a week. Or maybe you just signed two car loans that are costing you $650 a month a pop.
In that case, you may want to limit your housing costs to 20% or 25% of your take-home pay to play it safe. But all told, if you change your housing requirements to a reasonable degree, you may find that you’re able to afford a home in 2024 after all.