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In the third quarter of 2022, the median home price in the U.S. was around $400,000. That means the average homebuyer required a six-figure income to afford their purchase — and the $2,682/month payment that accompanied it. If that seems steep, don’t lose hope. Here are six strategies to help you afford that new home you’ve been dreaming of when prices and mortgage rates are high.

1. Choosing a property. There’s an old real estate saying: “Location, location, location.” And that’s because location is such an important driver of price and value. While picking a prime location can drive price up, moving a little further from a city or choosing a less sought-after neighborhood can help control costs. You can also consider an older home — taking into account the cost of potential repairs — or one with a smaller footprint. These moves may also lower your property taxes.

2. Adjustable-rate mortgages (ARMs). Unlike a fixed-rate mortgage, the interest rate of an ARM can vary over the loan term. The “start rate,” also called an intro or teaser rate, is fixed for a predetermined period (such as five years for a 5/1 ARM), but then can fluctuate according to an index — typically the secured overnight financing rate, or SOFR, plus a margin. The 1 in a 5/1 ARM means that the interest rate can subsequently adjust every (one) year. ARMs typically carry a lower rate than fixed-rate mortgages but carry the risk of going higher over time. An ARM may make more sense if you’re confident you will sell the home within the period of your start rate; otherwise you risk not being able to afford your payments in the future.

3. Higher down payment. If you can scrape together a higher down payment, it can lower your monthly payment significantly. And by exceeding the 20% threshold, you can save even more by dropping private mortgage insurance, or PMI.

4. Put time on your side. Real estate deals may be few and far between in a competitive real estate environment, but you have a better chance of scoring one if you’re not in a hurry. Allow plenty of time to shop around so you can take advantage of any lulls in the market.

5. Negotiate and lowball. It may be a tougher sell in a hot market, but you still may get lucky by putting in low offers. Consult with an experienced real estate professional for advice on getting your best chance of having a seller accept a lowball offer, knowing you may need to make a bunch of them before someone bites.

6. Get preapproved. Do what you can to make your offer more attractive by getting your financing preapproved by your lender. If a seller needs more time to get out of their home, you may be able to contract to let them stay and rent it out from you. Waiving contingencies comes with risks, so don’t do this without careful consideration.

Buying a home is one of the biggest purchasing decisions anyone ever makes. A consultation with a qualified financial professional can help you weigh your options.

Sources

https://www.statista.com/statistics/272776/median-price-of-existing-homes-in-the-united-states-from-2011/

https://money.com/six-figure-income-needed-to-afford-home/

It’s not always a smooth ride when it comes to managing personal finances. Bumps in the road can derail your plans if you don’t take steps to protect yourself and stay on top of the situation. Here are some strategies that can help.

Financial Challenges

There are a number of difficulties you can face on the journey through life. Some events that can negatively impact your personal finances include:

●     Layoff or furlough

●     Illness or disability

●     Lawsuits

●     Divorce

●     Death of a spouse

●     Investment losses

●     Fire or theft

●     Pay cut or reduced hours

●     Major repairs (including home or auto)

Plan, Prepare and Protect Yourself

You can prepare financially for most of these situations. Combining approaches to create multiple layers of protection is even better.

●     Insurance. A good home or auto insurance policy can help lower expenses related to an insured event such as a theft, fire or accident. Health and disability insurance can cover some costs related to illness or injury. And life insurance can assist your family in the event the unthinkable occurs.

●     Umbrella policy. If you’re worried about major accidents and lawsuits that target your assets, an umbrella policy can protect you in a way that a regular insurance policy might not. An umbrella policy’s coverage generally picks up where home and auto policies leave off.

●     Emergency fund. Set aside money in an emergency fund to cover expenses without having to rely on credit cards. This dedicated account can also help you withstand investment losses as you wait for a recovery or adjust your strategy.

●     Maintain good credit.  Should you need a loan to help with certain setbacks, having good credit can go a long way toward ensuring access to lower rates and more affordable terms.

With the right planning in place, you have a better chance of weathering financial storms. Take action before you’re in the middle of a crisis if at all possible.

Additional Tips for Managing Financial Setbacks

●     Don’t panic. Take a moment to stop and breathe. It can be difficult to make decisions at this time, but it will be harder to think clearly if you’re panicked.

●     Look for community and state resources. If you can access a food pantry, apply for unemployment benefits or connect with other programs, it can free up necessary cash to deal with a crisis. Remember that these services are meant for times of distress. Consider returning the favor for others when you get through this setback.

●     Take care of yourself. Do your best to eat healthy, get adequate sleep and exercise. You’ll make better decisions and have greater resiliency when you practice self-care.

●     Do some research. There’s a plethora of articles and advice online, but seek out only reputable sources of financial information — not chat rooms or social media.

●     Seek social support. Get emotional support from friends and family who won’t judge you. Find people who can serve as a sounding board as you work through financial challenges.

The Bottom Line

Seek information and advice from reliable sources as you navigate financial setbacks. Your WellCents financial professional can be a value resource to help you plan and pivot to adjust your financial strategy to help weather whatever storm blows through.