Buying a Home with Rising Interest Rates and in a Hot Market

by Ruffin

The fed raised interest rates, yet home prices don’t seem to be cooling down. So, what is going on with this hot housing market? And, when will you be able to afford your first home?

If you’re wondering this, you’re definitely not alone.

In fact, the National Association of Realtors estimates that nearly one million first-time home-buyers were completely priced out of the market in 2021. 

The median home in the U.S. is now $374,900. Saving up for a 20 percent down-payment (approx. $75,000) can feel daunting. Well, I have some good news for you. The idea that you need 20 percent for a down-payment is a total myth! In fact, the median down-payment for first-time home buyers was reported to be just 7 percent in 2021. For the median priced home in the U.S. that lowers your down-payment amount to just over $26,000. A much more achievable goal.

Step 1: Determine Affordability

To determine overall affordability and set a down-payment goal, calculate your Debt to Income ratio first. Often referred to as your DTI,  your debt to income ratio is a key underwriting metric used by lenders to assess your ability to take on mortgage debt. 

Debt to Income = (Sum of all your monthly debts) / (Sum of your gross income)

Each lender may have slightly different DTI requirements, but a good rule of thumb is to follow the 28/36 rule. According to this rule, your mortgage payment should be no more than 28% of your monthly gross income and 36% of your total debt. 

Step 2: Find Assistance

As a first-time homebuyer, you may be eligible for down-payment assistance. Down-payment assistance or “DPA” is often provided by local, state, and national governments, and is provided in the form of grants, second loans, and or tax credits. As an example, if you meet certain income, sales prices, and credit requirements as a first-time homebuyers in North Carolina, you may be eligible to receive the following down-payment assistance:

  1. North Carolina Home Advantage Mortgage: down payment assistance up to 5% of the loan amount
  1. First Home Advantage Down Payment: $8,000 as 0%, deferred second mortgage
  1. NC Home Advantage Tax Credit: save up to $2,000 a year on federal taxes with a Mortgage Credit Certificate 

***Repayment of all of our down payment options is required only if you sell, refinance or transfer your home before year 15—the down payment assistance is forgiven at 20% per year at the end of years 11–15, with complete forgiveness at the end of year 15.

To learn more about what you might be eligible for, google your state’s Housing Finance Agency and search for home buying programs on their site. Or, speak with a licensed mortgage professional in your area. 

Step 3: Set a Home Savings Goal

Now that you have determined your home price affordability and identified any eligible down-payment assistance, it’s time to set your S.M.A.R.T. home savings goal. In addition to the down-payment, plan to save 2-5% of the purchase price for closing costs and other upfront fees that will be due at closing. Keep in mind, some mortgage lenders may also require you to set aside 2-6 months of your monthly mortgage payment, including principal, interest, taxes and insurance.

Related Reads:

How to Set Yourself up for Financial Success After Buying Your First Home

Financial Tips for Buying Your First Home

Buying Your Home in 9 Steps


Ruffin is a TikTok creator @ruffinm. She is also the founder of balsa – a new real estate community supporting first-time homebuyers with financial tools, education, and coaching. She is a current FTMBA student at UCLA and former CPA from Deloitte.

Give Ruffin a follow on TikTok here and follow balsa here to stay up to date on their launch…coming soon!   

DOWNLOAD THE NAV.IT APP TODAY!

More Stories
Nav.it Delivers Powerful Mindset Subscription Release to Build Better Money Habits
%d bloggers like this: