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Are Buyers Stretched Too Thin?

With a nationwide inventory shortage, home prices are spiking, spurring bidding wars in tough-to-negotiate sellers’ markets—and yet, these conditions are not dissuading buyers from throwing their hat in the ring, even if that means stretching themselves thin to reach that homeownership goal. Using median mortgage balances compared against the median home value and income of over 2,500 cities, WalletHub recently narrowed down the cities with the highest mortgage debts. Here are the top five: Willis, Texas Overleverage Score: 65.77 Mortgage Debt-to-Income Ratio: 417 percent Mortgage Debt-to-House Value Ratio: 190 percent Ewa Beach, Hawaii Overleverage Score: 65.33 Mortgage Debt-to-Income Ratio: 1003 percent Mortgage Debt-to-House Value Ratio: 76 percent Dumfries, Va. Overleverage Score: 65.29 Mortgage Debt-to-Income Ratio: 643 percent Mortgage Debt-to-House Value Ratio: 145 percent Kahului, Hawaii Overleverage Score: 63.66 Mortgage Debt-to-Income Ratio: 979 percent Mortgage Debt-to-House Value Ratio: 75 percent Santa Ana, Calif. Overleverage Score: 62.30 Mortgage Debt-to-Income Ratio: 976 percent Mortgage Debt-to-House Value Ratio: 71 percent Even as buyers stretch for affordability, the real estate industry is wary that these challenged market conditions will impede their ability to buy. In order to assist homebuyers, lenders are searching for ways to ease borrowing restrictions by creating incentives, such as allowing lenders to provide partial credits. Fannie Mae recently updated its Single Family Selling Guide to allow lenders to supply partial closing costs and contribute to fees under certain conditions. However, these solutions do little to offset the large debt buyers are taking on. With the debt-to-income thresholds being raised—Fannie Mae increased it to 50 percent from 45 percent last summer—more buyers will be at risk of becoming “house poor.” With the demand for homes slowly increasing and mortgage rates predicted to rise, could this easing of credit restrictions for loan worthiness be a sign of another bubble? Liz Dominguez is RISMedia’s associate content editor. Email her your real estate news ideas at ldominguez@rismedia.com. For the latest real estate news and trends, bookmark RISMedia.com.