7.9 Million American Renters Can Afford to Buy Homes

Resources for renters will be presented at a renters' rights workshop hosted by the City of San Antonio on SaturdayPhoto by(Bria Woods / San Antonio Report)

Millions of U.S. Renters Could Afford to Buy Homes, Analysis Reveals

In 2022, a significant portion of American families, 39% of the 134 million households, were renting rather than owning their homes, according to the American Community Survey by the U.S. Census Bureau. Notably, Zillow's recent analysis reveals that approximately 7.9 million of these renter households were "income mortgage-ready," meaning they could afford a mortgage without spending more than 30% of their income on housing.

This finding highlights a potential shift for many renters who might not realize their financial readiness for homeownership. Senior Economist at Zillow, Orphe Divounguy, notes that while some people prefer renting, others may be unaware of their ability to afford a home.

Melissa Cohn, Regional Vice President at William Raveis Mortgage, suggests that renters nearing the end of their leases should evaluate their financial position. With rising rental prices, purchasing a home could be a more viable option. She recommends getting verbally prequalified by a lender as a preliminary step to understanding whether buying is feasible.

A crucial part of this process involves knowing one's credit status. Brian Nevins, Sales Manager at Bay Equity, emphasizes the importance of credit awareness. He dispels the myth that checking your credit negatively impacts your score, noting that many lenders now offer soft credit checks that do not affect credit ratings. Monitoring and improving credit in advance can significantly benefit potential buyers.

Another key factor is the debt-to-income (DTI) ratio, which measures monthly debt payments against income. According to Divounguy, a high DTI ratio is a common reason mortgage applications are denied. Nevins explains that understanding this ratio helps prospective buyers set realistic budgets. The 28/36 rule suggests that housing expenses should not exceed 28% of gross monthly income, with total debts kept within 36%.

Lenders may occasionally accept higher DTI ratios, sometimes up to 45% or more, depending on individual circumstances. However, affordability also hinges on factors like home prices, down payments, property taxes, insurance, and potential homeowners association fees.

Consulting with a mortgage professional can provide a comprehensive overview of these considerations, helping renters navigate the path to homeownership. As Cohn advises, professionals can offer guidance and set realistic goals for those looking to transition from renting to owning.

Attributions:
CNBC