Californians Can Afford to Purchase a New Home!

Group says more Californians can afford to buy their first home
By ALEX VEIGA, AP Business Writer

(02-19) 12:13 PST Los Angeles (AP) --

Frustrated California renters take heed: A trade group says it's getting easier for people to afford their first home.

With home prices in a downward spiral in many once-booming areas, the percentage of California households that can afford to finance an entry-level home increased in the last three months of 2007 compared to the same period a year earlier, the California Association of Realtors said Tuesday.

The trade group for real estate agents calculates affordability based on the minimum household income required to make a 10 percent downpayment and secure an adjustable interest rate loan at 6.21 percent.

Some 33 percent of the households in the state met those guidelines in the fourth quarter — up from 25 percent in the same three months of 2006, the association said.

Buyers needed to earn $82,200 to afford financing of $411,170, the typical statewide price for an entry-level home during the quarter, the trade association estimated.

The monthly payment for such a purchase, including taxes and insurance, was $2,740, the association said.

An entry-level home was defined as one priced at about 85 percent of the median home price in an area.

The most affordable area of the state during the quarter was the desert north of Los Angeles, where some 54 percent of households met the association's $43,800 annual income threshold to finance an entry-level home priced at $218,880.

Sacramento County was next, with 53 percent of households within the income range needed to afford a home priced at $252,920.

The least affordable area was the Central Coast region of Monterey, where only 20 percent of households earned the $118,200 needed to finance an entry-level home at $591,200.

In Los Angeles County, 27 percent of households earned the $86,700 a year needed to buy a home priced at $433,200.

Some 46 percent of households in Riverside and San Bernardino counties, which have been hit particularly hard by rising foreclosures and falling home values, earned $57,600 a year, enough to finance a $287,330 home, the association said.

In the San Francisco Bay area, meanwhile, only 23 percent of households reported income of at least $132,300, the minimum to purchase a home priced at $660,660.

Compliments of:
California Association of Realtors: www.car.org

Critical Considerations When Purchasing a Home!

Thinking about purchasing a home of your own? Keep these critical considerations in mind:

*How long you plan to live in the home? If you purchase a home and get a job transfer or decide to move after only a short time, you may end up paying money in order to sell it. The value of your home may not have appreciated enough to cover the costs that you paid to buy the home and the costs that it would take you to sell your home. The length of time that it will take to cover those costs depends on various economic factors in the area of the home. Most parts of the country have an average of 5% appreciation per year. In this case, you should plan to stay in your home at least 5 to 7 years to cover buying and selling costs. If the area you buy your home in experiences an economic up turn, the length of the time to cover these costs could be shortened, and the opposite is also true. *How long the home will meet your needs? What features do you require in a home to satisfy your lifestyle now? Five years from now? Depending on how long you plan to stay in your home, you'll need to ensure that the home has the amenities that you'll need. For example, a two-bedroom dwelling may be perfect for a young couple with no children. However, if they start a family, they could quickly outgrow the space. Therefore, they should consider a home with room to grow. Could the basement be turned into a den and extra bedrooms? Could the attic be turned into a master suite? Having an idea of what you'll need will help you find a home that will satisfy you for years to come.

*Your financial health - your credit and home affordability. Is now the right time financially for you to buy a home? Would you rate your financial picture as healthy? Is your credit good? While you can always find a lender to lend you money, solid lenders are more skeptical if your credit history is not good. Generally, a couple of blemishes on a credit report will make you a good credit risk and could qualify you for the lowest interest rates. If you have more than a couple of blemishes on your report, some lenders may still provide you with a loan, but you may just have to pay a higher interest rate and fees. Some say that you should refrain from borrowing as much as you qualify for because it is wiser not to stretch your financial boundaries. The other school of thought says you should stretch to buy as much home as you can afford, because with regular pay raises and increased earning potential, the big payment today will seem like less of a payment tomorrow. This is a decision only you can make. Are you in a position where you expect to make more money soon? Would you rather be conservative and fairly certain that you can make your payment without stretching financially? Make sure that whatever you do, it's within your comfort zone. *To determine how much home you can afford, talk to a lender or go online and use a "home affordability" calculator. Good calculators will give you a range of what you may qualify for. Then call a lender. While some may say that the "28/36" rule applies, in today's home mortgage market, lenders are making loans customized to a particular person's situation. The "28/36" rule means that your monthly housing costs can't exceed 28 percent of your income and your total debt load can't exceed 36 percent of your total monthly income. Depending on your assets, credit history, job potential and other factors, lenders can push the ratios up to 40-60% or higher. While we're not advocating you purchase a home utilizing the higher ratios, its important for you to know your options. *Where the money for the transaction will come from. Typically homebuyers will need some money for a down payment and closing costs. However, with today's broad range of loan options, having a lot of money saved for a down payment is not always necessary - if you can prove that you are a good financial risk to a lender. If your credit isn't stellar but you have managed to save 10-20% for a down payment, you will still appear to be a very good financial risk to a lender.

*The ongoing costs of home ownership. Maintenance, improvements, taxes and insurance are all costs that are added to a monthly house payment. If you buy a condominium or a townhouse, a monthly homeowner's association fee might be required. If these additional costs are a concern, you can make choices to lower or avoid these fees. Be sure to make your Realtor and your lender aware of your desire to limit these costs. If you are still unsure and want buy a home after making these considerations, you may want to consult with an accountant or financial planner to help you assess how a home purchase fits into your overall financial goals.

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