Home Affordablility

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Mortgage and Lending with Fairway Independent Mortgage Corp (Houston) NMLS #168854/#2289

Well informed home buyers in Houston and throughout the State of Texas understand that the time to buy is now! Houston home buyers are more informed than ever before as a result of their Trusted Advisors (Preferred Lender and Realtor®) sharing great information and content to educate and assist them in making the best overall decision for their home purchase. Home on Money

On June 30, 2011, The National Association of Realtors Housing Affordability Index (HAI) was released. The NATIONAL ASSOCIATION OF REALTORS® (NAR®) affordability index measures whether or not a typical family could qualify for a mortgage loan on a typical home. A typical home is defined as the national median-priced, existing single-family home as calculated by NAR®.

The typical family is defined as one earning the median family income as reported by the U.S. Bureau of the Census. The prevailing mortgage interest rate is the effective rate on loans closed on existing homes from the Federal Housing Finance Board and HSH Associates, Butler, N.J. These components are used to determine if the median income family can qualify for a mortgage on a typical home.

According to the recent NAR® numbers and comparing 1981 (the lowest the affordability index has ever been at 68.9) through May 2011 (the highest the affordability index has ever been at 182.7), it is greater than 2.5 times more affordable today to own a home than it was in 1981 when interest rates were hovering around 15%. Today, interest rates are below 5%! Just 6 years ago in 2005, the affordability index was at 107 with interest rates close to 6%.

The Study looks at Median Sale Price, Interest Rate, Payment and Qualifying Income. The data indicates that this is the highest the index has been in 30 years! What does this mean? The higher the index, the more affordable it is to own a home; however, as interest rates change - it affects the affordability.

With this said - If you want to buy a home, now would be a great time to do it as home prices are down and interest rates are low - but for how long? Look back 6 years (to 2005) to see where interest rates were then and this will help answer the question. Rates will go up - it is just a matter of how soon and as rates change - it affects the affordability.

We are not saying that buying a home is for everyone. We believe that buying a home must be a "fit" to your overall "short" and "long" term financial goals and that your "financial house" should be in order. Your purchase should fit your needs for a long time to include convenience and proximity to work, school, shopping, etc.

To help interpret the indices: a value of 100 means that a family with the median income has enough income to qualify for a mortgage on a median-priced home. An index above 100 signifies that family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment.

For example, a composite HAI of 120.0 means a family earning the median family income has 120% of the income necessary to qualify for a conventional loan covering 80 percent of a median-priced existing single-family home. An increase in the HAI, then, shows that this family is more able to afford the median priced home.

The calculation assumes a down payment of 20 percent of the home price and it assumes a qualifying ratio of 25 percent. That means the monthly P&I payment cannot exceed 25 percent of the median family monthly income.

Well informed Houston Texas home buyers have been "empowered" to know that now is the time to buy. Get out there!

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James Ward is the Branch Manager and a Certified Mortgage Planning Specialist, CMPS® with Fairway Independent Mortgage Corp., a Mortgage Banking firm in Houston Texas; NMLS #168854. James has been in the Real Estate profession since 1988 and graduated from The Pennsylvania State University with a B.S. in Real Estate in 1988. James can be reached at (713) 528-0333 or via e-mail at jamesw@fairwaymc.com. Check us out on the web at www.fairway-homeloans.com.

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