With the effects of the coronavirus and nationwide lockdowns still taking a toll on the economy, becoming a homeowner in 2021 is exceptionally difficult. The housing price boom of 2020 has continued into 2021 with home prices up an astonishing 23%. The idyllic American Dream of owning a home with a picket fence is seemingly out of reach for a huge number of US citizens who simply cannot afford the outrageous prices that even the oldest, dilapidated homes are going for across the United States.
While there is no quick solution to this growing problem, there are other ways that you can enter the world of homeownership without having to plunge yourself into too much debt.
Understanding How Much House You Can Afford
Whether you’re renting in New York City or Portland, Oregon, you’ve likely noticed that rental rates are skyrocketingwhile rates of compensation at employers remain largely unchanged. In many cases, people are looking toward homeownership because, in their area at least, it may be cheaper than renting. Not only that, but the eviction moratorium that has been in place since the COVID pandemic began was recently struck down by the Supreme Court. Thus, the extension to Oct. 7 that had been promised isn’t coming. If they can’t find a way to afford a home or a new place to rent, homelessness becomes the only option.
While homeownership is certainly alluring to renters who want to and can make the jump, you must do your homework to know exactly how much home you can realistically afford. A conventional mortgage generally comes along with at least a 20% down payment of the total cost of the home which can be a sizable sum depending on your profession and where you live. Other factors include your debt-to-income ratio, i.e. the total monthly debts you owe when subtracted from your pre-tax income per month.
Fortunately, first-time homebuyer loans and other FHA loans tend to have far more forgiving requirements for those, like single parents, who don’t have the capital to put down a fifth of a home’s value outright. These loans have down payment requirements closer to 3.5%, a much more achievable goal for hardworking folks who want a piece of the Real Estate pie.
Yet, many people, especially millennials, are struggling to pay for loans no matter the down payment requirement or low interest rate, without government relief.
Alternative Funding Methods
If you found yourself on the wrong side of the K-shaped economic recovery from the ongoing COVID-19 pandemic, the idea of even saving up for 3.5% of a home’s value for a down payment can feel impossible. It is unfortunate that in the United States, one of the wealthiest nations to ever exist, citizens are unable to afford a home while working 60+ hours a week. It is a system that keeps those on the bottom in place at the expense of their happiness and health.
It is not uncommon today to see young adults eschewing the standard home buying process, instead reaching out to family and even friends to help in purchasing a home. While you might balk at the thought of purchasing a home with a close friend, the option might be one of the few available if you’re interested in owning your own property in the modern economic landscape in the United States.
If you don’t have friends and family to assist you, you can get a bit creative with your finances to purchase a home. If you have a self-directed IRA, you can actually utilize it to buy and sell property. The downside to this method is that it is a lengthy process and cannot be attempted until you’ve retired per IRS guidelines. While it isn’t exactly a bright light at the end of the tunnel for younger Americans who may not ever be able to retire, it is still an option for many looking to purchase a home outside of the standard process.
Get Your Hands a Bit Dirty
If you’re reticent to purchase a home in a development out in suburbia, there are still options available to you provided that you have a decent amount of cash on hand. Building your own home or purchasing a prefabricated tiny home can ultimately be much less expensive; however, you will not likely be able to get a loan for the process and would probably be paying for everything out of pocket. While a tiny home or converted shipping container might only cost $20,000, you will need to have that money readily available along with the land to put it on.
One upside of this option is that you can completely control every facet of your home from the ground up. With a traditional home, owners get to put their stamp on the property through decorating and remodeling. Building your own home ensures that you have all of your needs addressed from storage capacity to the number of bedrooms, bathrooms, and their locations in the home.
Another quick way to finding some place permanent to hang your hat is to rethink your definition of what makes a home entirely. Without drastic changes to address income inequality in the United States of America, the situation we find ourselves in today will only continue to worsen. That said, RVs are legitimately comfortable options for those who don’t feel the need to stay in one place for too long.
At the end of the day, the simple fact of the matter is that finding affordable housing in the modern era is just plain difficult. This is an issue that isn’t contained to specific cities or states, nor does it affect one side of the political aisle and not the other. Just because the process is daunting doesn’t mean it is impossible.
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