Rental Costs Are Rising
The costs of renting a home are steadily rising causing many to questions if this will affect homeownership. Renting a home is becoming much less affordable as monthly rental rates increase every time a new lease is signed. This also causes security deposits to rise and make renting nearly impossible for some families. With these high rental costs comes many dissatisfied tenants. Some of whom will decide to buy a house and others who will have to grin and bear it.
Avoid Rental Costs, Afford Homeownership
The obvious answer to getting out of an expensive rental would be to buy a home. However, many renters still do not qualify for buying a home. The three main areas where potential homeowners fall short are downpayment requirements, credit worthiness and income guidelines. Many renters do not have a 5-10% downpayment readily available to make on a home. As rent costs keep increasing there is less money for renters to set aside in savings. This is trap that can keep many renters from making the leap into homeownership.
With the new Dodd Frank Act in place, many renters do not meet the income guidelines in order to qualify for a mortgage. The new laws deem that any loan granted above 43% debt to income ratio is not considered a qualified mortgage. This can be frustrating to renters who are applying for mortgage loan, especially when their new mortgage payment including principal, interest, tax and insurance would be lower than their current rent payment. These renters know that they can afford the mortgage payment because it is less than what they are currently paying, but the lenders may feel its too risky to extend credit to these applicants.
Lastly, many investors have strict guidelines regarding credit worthiness of borrowers. Not only do applicants need to meet the guidelines of having a minimum FICO score, but they also must have limited to no late payments and no currently delinquent or no outstanding collections. Renting may be the only option for individuals with less than great credit. Many landlords are will to take a chance on those with damaged credit, but after the great housing collapse of 2008 lenders are much more selective when underwriting mortgage applications.
So how does one get out of the predicament of avoiding raising rental costs while struggling to save money for a downpayment? Time is almost always the answer. Find as many ways as possible to cut corners and save some money, continue to pay your bills on time and find opportunities to raise your income. Keep these three factors in mind when deciding if you are ready to apply for a mortgage. Speak with your local mortgage provider to find out if homeownership is a possibility for you.