The term "home affordability" has become a buzzword is recent years. But what exactly does that mean? Is it just a jargon term meant to confuse us? Or is it really a measurement we should watch as home buyers?
Home affordability is basically the idea that prospective home buyers can afford to get into the market without breaking the bank. Several factors go into this idea, with home prices leading the way. This affordability tends to drive home ownership rates, and a recent report supports the idea that high home affordability and high home ownership rates go hand in hand. In fact, the top 5 states for ownership generally have the best home prices.
Here's an excerpt from an article looking at the recent report:
Affordability has a strong impact on homeownership. Not surprisingly, four of five states with the lowest homeownership rates in the US are characterized by markets with high prices. Washington, DC has the lowest homeownership rate at 45.3%. At the opposite end of the spectrum, West Virginia, New Hampshire, Michigan, and Maine have among the highest affordability and homeownership rates. The dispersion of state homeownership rates is a wide 22.4 percentage points around the US average of 65%, split symmetrically at 11.2 points on either side, with the exception of DC.
Here is the original article on home ownership rates from the National Association of REALTORS® blog: Homeownership rates
Why exactly do these 5 states have the highest home ownership rates? What makes Michigan a top destination for home buyers? Mark A. Jones, president and co-founder of AmeriFirst Home Mortgage says, "Michigan is great for anyone looking for a home because our home prices compared to median household income is a great ratio. Here in Michigan we can 'buy a lot of house' for a good price. It sounds like a cliché but it's true - it's a good time to buy a home in Michigan."
AmeriFirst Home Mortgage co-founder and CEO David N. Gahm agrees with his partner. "In Michigan we're seeing a consistent rise in home ownership rates rates for a couple of reasons. First, with interest rates still very low more borrowers can afford to buy and, second, with home prices at the level they are now, due to the housing market correction, buyers can afford to buy a home that was out of their price range only a few years ago. Couple this with the safe yet affordable mortgage programs for first time and repeat home buyers and you end up with a pretty active housing market. Clearly…Michigan is a pretty strong housing market."
Another reason hopeful home buyers find Michigan a great option is the amount of choices for mortgage financing available. From low down payment options to home improvement loans, buyers in Michigan have all kinds of options to help them find the right house, in the right place at the right time.
A popular mortgage option for many different home buyers is an FHA mortgage loan. This option comes with a low down payment requirement - 3.5% - and typically have more liberal qualification requirements as well. A bonus with FHA loans: The seller can contribute up to 6% of the sale price to help cover closing costs. Gift funds are also allowed to cover closing costs.
USDA Rural Development
One of the last true, legitimate zero down payment options out there today is the USDA Rural Development (RD) loan. An RD loan you can borrow 100% of the appraised value. This means you don't need to come up with the down payment. In fact, you can actually borrow 2% more than the appraised value, and use the extra to make some light repairs or home improvements. The main requirement for a USDA Rural Development mortgage is that the property must fall within certain geographical areas, outside the city limits of major metropolitan centers.
HomePath & HomePath Renovation
The HomePath mortgage option specifically helps home buyers finance a Fannie Mae-owned property. The down payment required is low - starting at 3% - and these homes are typically priced on the lower side. This can be a great option for buyers looking to get into the housing market on the less expensive side of things. HomePath Renovation is for those HomePath homes that need work. You can finance certain home improvements directly into the mortgage.
One of the top mortgage loan options for buying a fixer upper and financing the needed (or desired) work is the FHA 203k. From replacing the roof to new appliances, the work covered by the 203k loan seems endless. You get to buy a house, finance the remodeling you want or need, and have just one house payment. The key to this loan is finding a leading 203k lender with an expert team.
As you can see, your mortgage loan options are varied when it comes to financing your dream home. While Michigan tops the list in home ownership and affordability, plenty of other states like Indiana, Ohio and Tennessee are all great places to own your house.