First-time Homebuying in a Hot Housing Market

The Money Fit Show

Episode #014

First-time Homebuying in a Hot Housing Market

Guest Name: Luke Erickson

About Our Guest: Dr. Luke Erickson is an Accredited Financial Counselor (AFC), REALTOR®, and Associate Professor of Personal finance in the Margaret Ritchie School of Family and Consumer Science at the University of Idaho

Regardless of the housing market location or even performance, buying a home should also involve basic rules like debt-to-income ratios, an affordable monthly payment, and interest rates. No more than approximately 36% of your income should go toward your monthly housing costs.

In hot markets, though, financing options and the actual homebuying processes can change when making offers and negotiations.

When financial institutions aggressively market to potential homeowners in a hot market, approving applicants not traditionally considered financially unprepared for homeownership, we run the risk of reliving what happened in advance of the Great Recession of 2007 and 2008.

Dr. Erickson discusses the meaning of the term being “house poor” and the problems associated with getting into a home that’s too large for your budget. He then brings up a number of options for approaching homebuying if you live in the high-priced market.

1. Homeownership Rules of Thumb for qualifying for a loan

2. Suggested percentage of income that should go to housing

3. The problem with hot housing markets for first-time homebuyers

4. How trends in interest rates may change in relation to the health of the overall economy

5. Painful Consequences when rules of thumb are broken

6. Options for new homebuyers in areas of skyrocketing home prices

7. Comparing home prices and cost of living when opportunities arise around the country

Links referred to in the episode, and how to connect with our guest, Dr. Luke Erickson:

Cost of Living Comparison Tool from Money Fit by DRS

Cost of Living Comparison Tool from BestPlaces.net

Northwest Youth Financial Education

Luke Erickson, University of Idaho Extension

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