Neither cooler weather, nor the pandemic, nor the busy holiday shopping season seem to slow down prospective home buyers in the Bristol TN real estate market. November and December are usually slow months for the real estate market and sellers hardly ever get more than few offers during this time of the year. However, since 2020 is not a typical year the numbers in the housing market are on the rise.
The TN Real Estate Market vs the National Data
According to the Mortgage Bankers Association, mortgage applications to buy a home increased by 9% the last week of November 2020 comparing to the same time last year. The average purchase loan amount climbed as high as $375,000 due to the increasing house prices. The average contract interest rate for the 30-year fixed-rate mortgages was 2.92% which is a historically low rate. Mortgage loans with a 20% down payment saw points drop from 0.35 to 0.31. On the other hand, at the end of last month, the number of homeowners who wanted to refinance their mortgage started to drop but it was still 102% higher comparing to last year.
The Bristol TN real estate market seems to follow the national trends. According to the Northeast Tennessee Association of Realtors®, home sales were up 22% in November comparing to the same time last year. So far, over 8000 homes have been sold in the area. In November 2020 there were about 773 closings which is up from 630 closings in November last year. The average sale price was up by 26.7% when comparing with 2019. Furthermore, the median home sales price was $180,000 in November which means half of the houses were sold above this price.
In the meantime the housing inventory keeps dropping. The old real estate rule states there should be a six-month supply of houses for sale in any given market. In our local market the amount of inventory adds up to a 2.1 month supply. Taking all of this into consideration it seems like the market will experience this shortage of inventory way into 2021.
The Bristol TN real estate market is certainly a seller’s market right now. In spite of high unemployment numbers nationwide and skyrocketing house prices buyers are eager to find their dream home. One of the biggest motivators are extremely low mortgage rates which also encourages many buyers to take out larger loans than they may have previously considered.
How Much Mortgage Can You Afford?
The Bristol TN real estate market is considered one of the most affordable ones in the country. Nevertheless, some prospective home buyers, tempted by the low mortgage rates, may consider a high loan without taking into account all aspects of their finances and their lifestyle. It is crucial to determine how much mortgage you can afford to avoid being “house poor” in the future.
All mortgage lenders consider several factors in order to determine your affordability, such as gross income, front-end ratio, back-end-ratio, credit score and down payment.
Your gross income consists of your annual salary, additional income you may be getting, alimony and any other benefits you receive. Front-end ratio, also known as mortgage-to-income ratio, is the percentage of your gross income which can be applied to pay for your mortgage each month. Typically, your mortgage-to-income ratio should not exceed 28% of your gross income. However, some lenders may agree on a front-end ratio to exceed 30 and even 40%.
Back-end-ratio, also known as debt-to-income ratio, determines the percentage of your gross income needed to pay your debts such as credit card payments, child support and other loans. Most lenders would like to see the back-end-ratio to be less than 36% of your gross income. What it means is if your gross income is $50,000 a year then your monthly debt should not be higher than $1,500.
Your mortgage lender will determine how reliable you are as far as paying all your debts by checking your credit score. Even if you’re not planning to buy a home in the near future you should start working on your credit score today making sure it’s as high as possible.
Most lenders would like to see that a buyer can afford at least 20% down payment on their future property. The more you can pay upfront the less you need to finance which in turn will help you get a lower interest rate.
Hurray! Your mortgage lender approved you for $400,000 loan! Before you rush to put an offer on your dream home, stop and think some more about your personal budget.
Do you rely on one income or two in your household? Is your job stable? The events of the recent months showed us we should stop taking things for granted. If you were to lose your current job could you easily get another one which paid the same or perhaps more? If you rely on every bit of your income in order to cover your monthly expenses any small change can create a major gap in your budget.
Your mortgage lender calculated all your current debts in order to approve you for the loan, but what about future expenses? Do you have kids who will go to college at some point? Will your teenager soon need a car? Do you like going on vacation every year? If you’re not afraid to adjust your family budget limiting expenses related to shopping, leisure or eating out you may be ready to take on a higher mortgage payment.
Last but not least, buying a house is a solid investment and a great accomplishment but it’s also a great deal of maintenance. First-time homebuyers are often surprised how much maintenance is involved in owning a house. Older homes are not the only ones which require frequent repairs. New construction houses often come with their own set of issues. Anything from a broken water heater to termite damage may create a big strain on a tight family budget. To avoid increasing your debt you should have some money set aside for any unexpected events. Moreover, keep in mind utility companies as well as homeowners associations often raise their fees.
Buying a house is a complicated process which is why it is important to work with a professional who knows the local market and has only your best interest in mind. If you have any questions about the Bristol TN real estate market or the Tri-city TN area give us a call at 423-283-4677 or send us an email.