With interest rates falling and home prices declining, 51 percent of renters qualify to be first-time buyers, according to a California Association of Realtors (CAR) first-time buyer financing index.
The index measures buying conditions for hypothetical first-time buyers. CAR’s math includes a smaller down payment (10% vs. 20%) and no secondary debt such as credit cards, student loans, and auto payments. The index also assumes more conservative underwriting standards used only by institutional lenders (credit unions, banks, and mortgage bankers). Specifically, it assumes a buyer’s debt to income ratios (DTI) are limited to 40 percent (front end) and 44 percent (back end).
The 40/44 are the limits (rules) imposed on institutional lenders by Dodd-Frank due to their leading role in the Great Recession meltdown and subsequent taxpayer bailout. Mortgage brokers can typically expand those front-end/back-end debt ratios to 45/55. The difference can translate into $10-20K in purchasing power for buyers.
Brokers also have loan programs for lower credit scores, easier qualifying criteria for self-employed borrowers and for buyers using FHA or VA loans, and a manual underwriting process expanding guidelines even further.
In the region consisting of LA, Orange, Riverside, and San Bernardino, the first quarter’s 51 percent first-timer affordability rate was slightly above 49 percent in the previous quarter and unchanged from 51 percent a year ago.
Buyers need an annual income of $70,090 to comfortably make the $2,340-a month mortgage, taxes, and insurance payments on a $432,650 home.
Here’s how first-time affordability looked in Orange County:
42% affordability vs.38% previous quarter and 39% a year ago.
Income of $110,160 needed for $3,670 payment on a $680,000 home.
By traditional math, that’s 24% affordability, with $168,340 income needed.
First-time affordability was between 62% and 21% since ’04.
Renters, if you’re considering buying your first home, we not only have the best lending partners to help get you the best rate, but we also have 5 distinct strategies that have consistently saved our clients 6% and more on the value of their new home!
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