NAR Finds Income to Qualify for Mortgage Well-Below U.S. Median
By: Esther Cho
Interest rates continue to slide further down alongside the decline in home prices. In addition to these factors improving affordability for homeowners, the National Association of Realtors (NAR) found the amount of income needed to qualify for a mortgage is actually well below the median income in most parts of the U.S.
The national median family income was $61,000 in the first quarter. If a buyer wanted to purchase a home at the national median price, he or she would need an annual income of $34,700 if making a 5 percent downpayment. A 10 percent downpayment would lower the requirement to $32,900, while a 20 percent downpayment requires about $29,300.
The information on qualifying incomes to purchase a median-priced single-family home on a metropolitan area basis assumes a favorable credit rating and an interest rate of 4 percent with 25 percent of gross income set aside for principal and interest.
Lawrence Yun, NAR chief economist, provided a more specific example and said a buyer in Indianapolis would only need an annual income of $24,000 after a 10 percent down payment to purchase a median-priced home, while in Seattle, the income would be $55,300.
“For now, buyers are facing an extraordinarily advantageous situation if they can obtain a mortgage,” he said.
The NAR report also found that 32 percent of home purchases paid all-cash in the first quarter o 2012, and investors, who make up the bulk of cash purchasers, accounted for 22 percent of all transactions in the first quarter.
Inventory has also seen a decline, with the number of existing homes for sale dropping 21.8 percent the first quarter of 2012 compared to a year ago during the same quarter, according to NAR. The number of homes for sale this quarter was 2.37 million and a year ago there were 3.03 million homes on the market in the first quarter.
NAR also reported the national median existing single-family home price was $158,100 in the first quarter, down 0.4 percent when it was $158,700 in the first quarter of 2011. The median price was down by even more compared to the previous 2011 fourth quarter when it was $163,500.
Yun explained that sales transactions were negotiated mostly in the previous quarter so home prices actually lag sales activity.
“Given the steadily dwindling supply of inventory and notably higher listing prices that are being negotiated today, prices are expected to show further improvements in the near future,” he said.
Distressed homes – foreclosures and short sales which drag prices down, made up 32 percent of first quarter sales compared to 38 percent a year ago.
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