After the problems of the last few years, new home buyers are encouraged to buy "affordable homes," a very attainable goal in the Ascension - East Baton Rouge area. Five years ago, lenders encouraged home buyers to stretch the definition of what was affordable to a figure far in excess of the traditional formula: buy a home valued at three times your annual household income. The emphasis was put on the monthly payment, which is one reason why people who should have bought $200,000 homes were buying $400,000 home because some crazy mortgage packages made their payment "affordable" until the interest rate adjusted or some other term of the loan kicked in. Fortunately, lending in the Baton Rouge-Prairieville area was more conservative, which is why the foreclosure rate in the area is much lower than elsewhere.
Now, many lenders are going back to basics. With housing prices coming down to earth, due to market adjustment, foreclosures, and in some areas, a big supply of bank-owned homes on the market, price will not impair a buyer from getting a home. This is especially true in the Prairieville area. The median listing price of a three bedroom home in Prairieville, according recent statistics is $256,900 ($250,000 Ascension Parish total) and $179,500 for Baton Rouge ($179,500 for East Baton Rouge Parish total.) The median income there, according to Realty Times data, is $56,600 for all buyers and $45,280 for first time buyers. With a 20% downpayment, buyers at the median income can easily afford a $257,000 home. First time buyers who typically have 80% less income and who often put down the minimum 3.5% with FHA, could afford a $141,000 home.
Aside from the cost of the home, lenders look at housing debt to income and total debt to income ratios. The goal is to keep monthly housing costs (mortgage, home insurance, taxes, mortgage insurance) under 30% of income and total debts (housing, car, credit cards, other loans) under 36-43%. Interest rates, which vary by the borrower's credit rating, affect the amount of the mortgage payment.
Current interest rates help define what is affordable. Someone with a 680 credit score, a 40% debt-to-income ratio, and a household income of $50,000 would qualify to borrow $180,000 at 5% rates. At 5.5%, they could borrow only $168,000, while at 6.5%, the amount would drop to only $158,000. These days, 620 is the credit score floor where it likely a lender will grant a mortgage - but at a much higher rate on a cheaper house. For credit scores over 720, excellent financing deals are available - especially now when the government is helping keep rates low.
Wondering how much home you can afford? Sandy's Team will help you work up the numbers and help you find an affordable home in Prairieville, Baton Rouge, or anywhere else in the tri-parish area of Ascension, East Baton rouge, or Livingston. Visit our Sandyco.com website today.
First time buyers: For an in-depth look at what to consider when buying a home, don't forget our Free Seminar for Baton Rouge Area Homebuyers on June 23 at 6:00 pm. Lending representatives will be on hand to address credit and mortgage issues. To register or for more information, please email info@sandyco.com or call (225) 292-7609.
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