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TABLE OF CONTENTS

• What Determines How Much House I Can Afford?
• Tools to Determine "How Much House Can I Afford?"
• What to Look for When Shopping for a House Online
• Which Home Loan is Affordable and Right for You?
• Getting Pre-Approved for an Affordable Mortgage is a MUST
• Selecting a Real Estate Agent
• Picking a Neighborhood
• Making an Offer - The Art of Negotiation
• Home Inspection/Home Appraisal

Introduction

For many people, purchasing a home represents the single largest investment of their lives. The process of determining how much house you can afford and qualifying for a mortgage in Oregon or Washington can be challenging.

Knowing how much of a home you and your budget can afford requires thorough due diligence on behalf of the buyer. After arriving at a reasonable estimate, you’ll possess a more accurate price range and be able to narrow your real estate search.

However, finding the perfect property to suit your needs is just a small part of the process. Before diving into your property search, it's essential to explore the vast array of home loan options and secure a mortgage pre-approval. Although the home-buying process may feel overwhelming now, the following information provides valuable insight and money-saving tips on buying a home in Oregon or Washington. It also helps answer the question, “How much house can I afford?”

What Determines How Much House I Can Afford?

From 1980 to 2020, the median and mean price of a single-family home rose year-over-year except for during the Great Recession. But after access to credit was restored and the economy steadied, housing prices continued to rise, and owners accrued significant equity. Over four decades, the median home price ticked up by 416 percent, and the mean increased by 420 percent, according to Motley Fool.

By that same token, home buyers in Oregon and Washington enjoyed more affordable home prices than many other states. That means home buyers are getting more bang for their buck in the beautiful Pacific Northwest. Before wading into the real estate market and applying for a home loan, consider the following strategies to determine how much you can comfortably afford.  

• Debt-to-Income Ratio: Your DTI ratio compares the amount of your income used to pay down monthly bills and debts against how much total money you earn. To calculate your DTI ratio, add up your total income and subtract debt payments. Lenders will use this figure as a factor when deciding how much mortgage you can afford. Or, perhaps more accurately, your ability to pay a monthly installment on a home loan. A debt-to-income ratio of below 30% is ideal, but some lenders may approve borrowers with a DTI of up to 50%.
  
  
•  Credit Score: A robust credit score can prove a decisive factor in qualifying for an affordable mortgage with favorable terms. People who post an exceptional FICO score of 780 or higher may be able to access select opportunities. But even middle-of-the-road scores in the 620-660 range may open the door to an affordable home loan. And reasonable loan products may be accessible to a community member with a score in the 500s. Although higher credit scores help create opportunities for lower-interest loans, don’t be discouraged from working with your local lender if you don’t have a perfect score.
  
  
• Down Payment: The standard down payment is usually 20 percent or higher. Having this amount of cash to put down provides lenders with enough confidence borrowers will make timely monthly payments. A 20 percent down payment opens the door to certain low-interest home loan products and favorable terms. However, it’s essential to understand that home buyers can secure an affordable mortgage with as little as 3 percent down.
  
  
• Mortgage Interest: To buy a single-family residence in Oregon or Washington, there are two standard types of mortgage interest programs. Fixed-rate interest mortgages are designed to provide static monthly payments. The mortgage you qualify for will come with a built-in interest rate that does not change for the life of the loan. By contrast, adjustable-rate mortgages (ARMs) may change periodically. An ARM home loan usually starts at a set rate for a period of time. As interest rate benchmarks fluctuate over time, your monthly mortgage payment may increase or decrease in conjunction with the index.
  
  
• Length of Mortgage: Fixed-rate mortgages generally offer terms ranging from 15 to 30 years. Considering the length of a home loan through the affordability lens helps borrowers make a monthly budget and long-term financial decisions. Shorter repayment periods reduce the amount of interest borrowers pay on the life of the loan. Longer repayment periods result in lower monthly installments. Consider running the numbers through an online mortgage calculator when deciding the repayment terms that serve you best.
  
  

Lenders generally like to see that a borrower has two months of reserve cash on hand to pay the home loan in the event of a shortfall. As Forbes points out, the level of reserve funds can vary depending on the lender and the size of the mortgage. Although not every lending institution requires two months or more in reserves, it’s generally wise not to overextend yourself when purchasing a house. 

If you are a first-time home buyer and are open to money and time-saving tips, review our blog, "5 Mistakes to Avoid as a First-Time Home Buyer."

If you are considering moving into a more affordable home offering your monthly budget some relief, review our blog, "Wondering "Should I Refinance My Mortgage?" [Expert Tips Inside]."

Tools to Determine “How Much House Can I Afford?"

First-time home buyers tend to focus on getting an affordable mortgage without realizing significant peripheral costs may impact the monthly and overall payment. To make an informed decision about “how much house can I afford,” you need to account for these expenses.

• Property Taxes: According to the Tax Foundation, Oregon ranks 24th when considering Property Taxes Paid as a Percentage of Owner-Occupied Housing Value. The effective property tax rate in Oregon is 0.93%, while the U.S. average currently stands at 0.99%. However, specific tax rates can vary drastically depending on the county in which you settle down.

• Home Insurance: Lenders are generally required to possess a homeowner’s insurance policy to qualify for a mortgage. These policies must be maintained over the life of the loan to ensure the mortgage will be repaid in the event of a fire or natural disaster. Gather competitive quotes before deciding how much house you can afford. 

• Maintenance: You’ll quickly discover that owning a home requires ongoing maintenance and repair. Regardless of how many minor issues you correct, others will creep up. That’s why budgeting to upgrade appliances, fix plumbing, replace aging electrical wiring, pressure wash siding, and other out-of-pocket expenses is necessary.

• Utilities: The cost of electricity, HVAC, municipal water, sewer, and other utilities, are expenses every homeowner incurs. One way to account for these monthly costs involves reviewing today’s numbers and projecting future costs by adding historic increases.

Depending on the dream home you select, expenses such as association fees, school taxes, and others could come into play. By taking all of the potential costs into account, home buyers can arrive at reliable estimates by running the numbers through a debt-to-income calculator or home affordability calculator.

What to Look For When Shopping for a House Online

A study by the National Association of Realtors indicates that 90 percent of home buyers shop online. As an increasing number of people grow comfortable with online tools and many choose to relocate to states such as Oregon, that figure will only climb. For those who may be new to navigating online real estate searches, these tips can guide you in narrowing down your options and discovering the perfect affordable home you've been dreaming of.

• Use Multiple Platforms: Online real estate resources such as Zillow, Redfin, Realtor, and Homes.com, rank among the popular platforms used by home shoppers. It’s not uncommon for a property to be listed on multiple websites. Doing so ensures a potential home doesn’t fall through the cracks.

• Select a Location: Location remains a driving factor in single-family home selection. Many of these websites allow users to create narrow or expansive searches. Select a primary location and add a 50-mile radius to review nearby properties. There may even be options to scroll maps highlighting homes in your price range.

• Search Parameters: It’s best to determine how much house you can afford before searching online. Then you can use that figure for fields that include minimum and maximum listing prices. These real estate platforms also allow you to narrow searches by square footage, acreage, the number of bedrooms and bathrooms, and more.

• Request Virtual Tour: Savvy real estate agents often include photos and a virtual tour with the online listing. If a home doesn’t have one, that’s not necessarily cause for alarm. Locate the real estate professional’s profile and send an email requesting a video. If the seller’s representative doesn’t have one, you may need to schedule an in-person walk-through.

Once you narrow down the selection to suitable homes, you can uncover essential details about the property, neighborhood, and surrounding community. Some platforms generate statistics about schools, crime rates, the value of your dollar, and tax payments. Using these online resources will help you gain valuable knowledge while reducing the time spent searching for a home in another community.

Buying a house can feel out of reach, but you may be surprised at the amount of misinformation that exists. To discover the truth, review our blog, "What to Look for When Buying a House".

Buying your first home is a big deal! Check out our blog, "7 Common Misconceptions About Buying a House" so you are well-informed and confident during the entire process. 

Which Home Loans Are Affordable and Right for You?

FHA Loan

The Federal Housing Administration (FHA) insures mortgages that allow lenders to offer affordable home loans to all families. FHA Loan programs allow buyers to put as little as 3.5 percent down and qualify with imperfect credit scores. Because FHA-approved lenders need not worry about default rates, they are more confident in offering affordable mortgage rates and terms. These opportunities are popular among first-time home buyers.

For more tips on whether an FHA Loan may be the right mortgage for you, review our blog which offers an in-depth look at FHA Loan pros, cons, and must-know tips to get approved.

VA Loan

Active military personnel, veterans, and surviving spouses can apply for a VA Loan. After receiving a Certificate of Eligibility from the U.S. Department of Veterans Affairs (VA) from the borrower, lenders can offer an affordable mortgage. VA Loans don’t always require a down payment, and the low interest rates and favorable terms are a thank you to those who served.

Conventional Mortgages

Qualifying for these privately guaranteed loan products requires higher credit scores, down payments, and a solid debt-to-income ratio. Conventional mortgages can offer fixed or adjustable-rate interest that may be more expensive than government-backed counterparts. With the support of Fannie Mae or Freddie Mac, these may offer more flexibility and are the most common type of mortgage in the U.S.

Fixed vs. Variable Home Loans

A fixed mortgage establishes the interest rate at the time the loan is approved. The cost is applied to the monthly payment and remains unchanged for the life of the loan. A variable or adjustable-rate mortgage (ARM) starts with a set interest rate. However, the interest charged against the mortgage principal fluctuates as industry benchmarks rise or fall.

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First-Time Home Buyer Programs and Grants

The U.S. Department of Housing and Urban Development (HUD) offers assistance in the form of grants and tax breaks to select first-time home buyers. Single parents, displaced homemakers, or someone who has not owned a home in the previous three years may qualify for local resources and mortgage support.

In addition to government assistance, CCCU offers a First Time Home Buyer program. The program is geared towards helping those purchasing a home for the first time receive flexible qualification requirements and reduced down payment obligations thereby making affording a home more attainable.

Maximizing your ability to afford a dream home stems from securing an affordable mortgage with favorable interest rates and repayment terms. Matching your credit score, debt-to-income ratio, and financial bandwidth with a suitable home loan product usually requires the help of an experienced mortgage professional. If you’re ready to get pre-approved for a mortgage, or if you need the advice of a trusted expert, please contact CCCUs Mortgage Team today.

For tips on getting approved for an affordable mortgage, review our blog, "Home Loans: What You Need to Know to Get Approved [10 Item Checklist]."

Getting Pre-Approved for an Affordable Mortgage is a MUST

The ability to identify which homes are affordable tasks potential buyers with knowing how large a mortgage a lender can offer. The terms “pre-qualification” and “pre-approval” both involve a review of your credit to determine a maximum mortgage limit, but the two concepts are slightly different.

Pre-qualification typically involves a cursory review that results in home buyers gaining a general idea about their borrowing power. By contrast, pre-approval involves a thorough vetting of your credit history, income, assets and establishes a clearly defined mortgage threshold. A mortgage pre-approval empowers potential home buyers to make decisive offers knowing they can complete the mortgage paperwork and set a closing date. Pre-approvals usually last for 60-90 days, depending on the lender.

People who enter the real estate market with pre-approval usually enjoy a competitive advantage with sellers. Sellers often prioritize offers knowing a lender is prepared to promptly underwrite a mortgage. When they work with people without this support, sellers risk losing a buyer if the mortgage falls through.

Credit Union vs Bank: Which offers the Best Mortgage Lenders & Mortgages?

The differences between a bank and a credit union can be significant when shopping for an affordable mortgage. While both types of lending institutions offer many of the same loan products, interest rates, terms, and fees may be different.

The fundamental difference between credit unions and banks stems from their overall structure and status. Banks must generate profits for their shareholders. Not-for-profit credit unions operate very differently. Credit unions were created with the purpose of providing cost-effective financial services to their members. A credit union isn’t owned by shareholders, but rather their members. Credit union profits in excess of expenses, are returned to members in the form of lower loan rates, higher savings rates, and lower fees.

When shopping for a home loan or seeking a mortgage pre-approval, compare the cost of charges such as the following.

• Application fees

• Attorney fees

• Courier fees

• Fees for pulling and reviewing credit reports

• Loan origination and processing fees

• Property-related fees

Closing costs can range from as low as 3 percent to more than 6 percent. When choosing the best lender to provide an affordable mortgage, be sure to conduct thorough due diligence. Compare interest rates, terms, closing costs, and other related charges. It’s not unusual for homebuyers to discover they can save money by working with a local credit union such as Consolidated Community Credit Union.

For more factors to keep in mind when deciding where you should apply for your mortgage, review our blog, "Credit Union vs Bank: Which Mortgage is Better."

Selecting a Real Estate Agent

A real estate agent can work with, or be hired by, either the buyer or seller in a transaction. When searching for the right house for your family in Oregon or Washington, many people like to have an agent who is working to find the right property to fit their needs, versus finding over-budget properties geared toward making a larger sale. These are some tips to consider when selecting a real estate agent.

• Consider the trustworthiness and personality of the agent.

• Find someone familiar with your target neighborhoods.

• Check references from previous home buyers and sellers.

It’s also important to work with someone who shares your values and handles properties in your price range. Selecting a real estate agent who sells luxury estates may not be the best choice if you’re looking for a starter home.

Picking a Neighborhood

Real estate professionals talk about location for a good reason. The true value of a home stems from the enjoyment of its occupants. Safety, quality schools, and a quiet area with good neighbors will always be more valuable in your day-to-day life than money. That’s why it’s generally a good idea to drive through the neighborhood and gain a sense of your comfort level. And don’t hesitate to experience what it feels like during rush hour or late in the evening. Choosing your neighborhood and community wisely will have a lasting impact on your happiness in your new home.

For more factors to keep in mind when deciding where you should buy your first home, read our blog, "Buying Your First Home? How to Pick the Best Neighborhood for You!"

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Making an Offer — The Art of Negotiation

Before a potential home buyer even considers making an offer, a negotiation is already underway.  Sellers list homes at a price that they are hoping to receive knowing that it will ultimately sell higher or lower than this listed price. In a sellers’ market, homes may sell for above the list price. Whereas the longer the home has been on the market, the more a buyer will be able to negotiate a lower price. The goal for home buyers in any real estate transaction is to pay the lowest amount the seller is willing to take.

Before taking a virtual tour or walk-through, do some homework about the listing. Online research may show previous transactions, and that provides valuable insight into the value and the seller’s potential profit. Tax records also indicate the value and when the municipality plans to reassess the property. The fact that taxes could be going up soon may provide leverage. If something comes up that could result in a reduced value or incurred expense, put the issue to work in the negotiations.

Home Inspection/Home Appraisal

When a home appraises for less than the agreed upon purchase price, it can be more difficult for a buyer to be able to get their mortgage.  In many cases, a buyer will have to come up with more money to cover an appraisal shortage, which can be difficult if not impossible in some cases.  At this point, a reasonable seller understands that a price reduction may be inevitable to complete the sale.  If the seller won’t negotiate reasonably or in good faith after a low appraisal, you may have to move on to another affordable home.

After you make a fair offer, the home inspection will likely turn up issues that need to be addressed. Many homes require some level of renovation or repair. Use them to renegotiate the offer rather than allow imperfections or minor structural issues to discourage you. Gather contractor quotes, add the cost of potential overruns, then request a price reduction or credit toward your closing costs! Home buyers sometimes turn a little profit as a result of this negotiation strategy.

Let Consolidated Community Credit Union Help With Your Home Buying Journey

As you can see answering the question of “How Much House Can I Afford” is complicated, but not impossible to determine. By conducting your due diligence and working with the right real estate agent and mortgage lender, you can streamline the process of finding and affording your dream home.

If you have questions about which mortgage is right for your unique financial situation or how to get a mortgage pre-approval, please contact us. We’re here to help!