You have been saving for a down payment, working to increase your credit score, and finally got your pre-approval to buy a house. Then you took a long hard look at the market. It's no secret that the current real estate market is highly competitive and home prices are higher than normal. If the current state of the real estate market has you second-guessing whether or not right now is the best time to purchase a home, don't feel too discouraged. There are still a lot of benefits to buying a home in NJ in this market. In order to better understand housing affordability and how it will affect you, here are three things to think about.
1. Mortgage Rates
This is perhaps the biggest factor when it comes to buying an NJ home today. If you have done the work to get your credit score where it needs to be, you could be taking advantage of historically low interest rates by purchasing a home now. Even if you do end up taking out a slightly bigger loan to account for rising home prices, you could still save money in the long run by not paying as much interest on your loan. A lower interest rate can reduce your monthly payments as well as the amount of time it takes you to pay back your loan.
2. Mortgage Payments as a Percentage of Income
The median household income for NJ is $82,545. Experts suggest that you shouldn't spend more than 25% of your total household income on needs for housing (including mortgage payments and related housing fees). This means that the average family in NJ can afford to spend around $1,700 on a monthly mortgage payment. While this number will certainly be lower for those who have other debts, it still means the average NJ family can afford the mortgage for a mid-sized home—even with higher home prices.
3. Down Payment
With bidding wars and homes selling for above asking price, the key to getting your offer accepted may be the down payment you are bringing to the table. Because homes are selling for above asking price, it is important for sellers to trust that the offer they accept—and the sales price they accept—will be covered no matter how the home appraises. For instance, if you put an offer of $300,000 in for a home listed at $250,000, there is a chance the sales price will be higher than the appraisal amount determined by your lender. In the event the home under-appraises, the sellers want to know the buyer has enough cash funds to cover the difference in appraisal. This means the more cash you have on hand, the more likely it is that your offer will be accepted over others—even if the sales price is ultimately lower than other offers for the same property.
If you have been working towards buying a home and you have all of your financing in place, you don't have to let the chaos of the current market derail your goals. With the right realtor, there are still excellent opportunities for a driven buyer.