Finances FYI Presented by JPMorgan Chase
By Aaron Allen, The Seattle Medium
One of the most important investments a person can make during their lifetime is buying a home. With home prices fluctuating and rising interest rates, there is pressure on those looking to purchase a home in today’s market to do so as soon as possible.
According to the National Association of Realtors, since the beginning of 2022 home sales have fallen as home prices continue to hit all-time highs. In addition, mortgage rates have nearly doubled going from three percent in 2021 up to six percent in 2022, which can make it challenging for many Americans, particularly those with limited incomes, to be able to afford a home.
With many families asking themselves if now is the right time to buy? And how much house can they afford? The Seattle Medium sat down with Quincy Crawford, a Senior Home Lending Advisor at Chase, to talk about the state of the housing market and what that means for families interested in buying a home.
As we began the conversation, Crawford’s main piece of advice to perspective homebuyers was to “secure your assets.”
“Don’t worry about rates. You can change your rates easily with a refinance, so let’s secure your asset and worry about your rate later,” says Crawford. “Worry about the things you can control such as location, schools and access to parks things of that nature. All the fun stuff. Potential homebuyers should focus on these things in the beginning.”
While many people may think that the current state of the housing market may make homeownership out of reach, Crawford says that there are a number of things that perspective homebuyers can do in order to improve their chances of landing their dream home – including reviewing your credit report and knowing your credit score as you begin your journey towards homeownership.
“There are a number of things you can do to improve your credit score,” says Crawford. “Starting with reviewing your credit reports to understand what might be working against you. You can also pay down your revolving credit and dispute any inaccuracies.”
“Additionally, there are services like Chase Credit Journey to help monitor and improve your credit score,” Crawford continued. “Credit Journey monitors all of your accounts and alerts you to changes in your credit report that may impact your score. You’ll get an alert any time Chase sees new activity, including charges, account openings and credit inquiries.
While the pathway to homeownership may be different based on your individual financial situation, Crawford says that it is important to keep track of two numbers throughout your process – your debt-to-income ratio and your credit score.
“When it comes to homeownership, your credit score and debt-to-income ratio are major factors in the application process,” says Crawford. “Lenders look at your debt-to-income ratio. This is a simple equation of how much debt you have relative to how much money you make. Borrowers with a higher debt-to-income ratio are considered riskier, while a lower debt-to-income ratio may allow you to qualify for the best rates on your home loan.”
“Your credit score is set based upon how you’ve used credit, or not used credit, in the past. Using credit responsibly, such as paying bills on time and having a low utilization rate will result in a higher score,” he added. “Higher credit scores can help you qualify for the lowest interest rates. A score at 700 or above is generally considered good.”
Another thing that perspective homebuyers should take into consideration are the additional expenses associated with buying a home. While many people put money aside for a down payment and calculate what their monthly payments may be, Crawford cautions that there are other common expenses that are part of the homebuying process.
“People often think of the down payment and monthly mortgage, but buying and owning a home carries additional costs,” says Crawford. “Closing costs, for example, can amount to up to 3% or more of the final purchase price. Other factors that could add on to your monthly payments are property taxes, homeowner’s insurance, and homeowner’s association (HOA) fees. To get an idea of what this may look like for you, we suggest clients use an affordability calculator.”
While it is not realistic that homebuyers can avoid paying these fees, Crawford says that there are ways to save on them. Some banks offer financial assistance for homebuyers. For example, Chase offers a Homebuyer Grant up to $5,000 that can be used toward a down payment or closing costs in eligible neighborhoods. There may also be a homeowners’ or down payment assistance program offered in your city or state. In order to find out what types of resources area available and whether or not you are eligible for them it is advised that you talk to a lending advisor in your area.
When applying for a home loan it is also important to understand the terms of the loan and determining the best financing solution for you. According to Crawford, there are two basic types of mortgage interest rates with which customers should be aware: fixed and adjustable. While adjustable rates are initially low, they can change over the course of a loan, so your mortgage payments may fluctuate. Loan term indicates how long you have to pay off the loan. Many homebuyers tend to opt for a 15-year or 30-year mortgage, though other terms are available. A longer loan term generally means you’ll have lower monthly payments, but you’ll pay more in interest over the life of the loan. A shorter loan term may come with higher monthly payments, but you’ll likely pay much less in interest over time.
For a deeper dive into this topic, consumers are encouraged to listen to Chase’s Beginner to Buyer podcast (www.beginnertobuyer.com) – episode three, “How Much Can I Afford?” (www.chase.com/personal/mortgage/beginner-to-buyer/episode-3). It is a great resource for prospective homebuyers to get answers to their homebuying questions.
You can learn more about the homebuying process, online at www.chase.com/personal/mortgage/home.
Finances FYI is presented by JPMorgan Chase. JPMorgan Chase is making a $30 billion commitment over the next five years to address some of the largest drivers of the racial wealth divide.
