Jul 28, 2024
Understanding Mortgage Readiness and Economic Trends
Discover how 8 million U.S. renters could benefit from being 'mortgage-ready', potentially saving 30% of their income, according to a Zillow analysis.
A new Zillow analysis reveals that nearly 8 million renters in the U.S. could significantly reduce their housing costs by becoming homeowners. These "income mortgage-ready" individuals could handle mortgage payments without exceeding 30% of their income but may not be aware of their buying potential.
Unveiling the Mortgage Readiness Gap
The Potential for Homeownership
According to recent data from Zillow, a substantial number of renters in the United States, nearly 8 million, are financially ready to afford mortgages on homes within their living areas but remain unaware of their capability. This group, identified as "income mortgage-ready," could potentially save up to 30% of their total income if they were to purchase homes instead of renting.
The Barrier of Awareness
Zillow's economist, Orphe Divounguy, emphasizes that many of these renters might not realize their ability to afford a home, keeping them in the rental market. Awareness is key, and financial experts like Melissa Cohn from William Raveis Mortgage suggest that renters whose leases are expiring should assess their ability to buy a home. This first step often involves a simple verbal prequalification with a lender, which can clarify whether pursuing a mortgage is a feasible move.
Knowing Your Financial Standing
Understanding one’s financial health is crucial before considering a mortgage. This includes knowing your annual income, current debt levels, credit score, and debt-to-income ratio. Brian Nevins from Bay Equity highlights the importance of credit health, advising potential buyers to monitor their credit months before deciding to enter the housing market. A soft credit check, which doesn't impact credit scores, is often the first step in this process.
Economic Factors Influencing Mortgage Readiness
The landscape of mortgage readiness doesn't only hinge on individual preparedness but also on broader economic factors. With a significant part of new housing supply emerging in the U.S. South, particularly in states like Florida and Texas, market dynamics such as these could present new opportunities for prospective homebuyers.
The Bottom Line
The gap in mortgage readiness represents a significant opportunity for both renters and the housing market. By improving financial literacy and awareness, millions could potentially transition into homeownership, bringing about substantial personal and economic benefits.
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