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Should You Drive Until You Qualify for a Mortgage?


In the mortgage/real estate world there’s a saying: “Drive until you qualify.”

It’s a cute way of saying if you can’t afford a home in a certain (desirable) area, hop on the highway and keep driving until home prices get more affordable.

This could mean driving an hour away from where you work, an obvious negative for someone who has to commute five days a week, especially if traffic is a bear.

This was common during the previous housing boom, with home builders often buying up cheap land in the outskirts of towns to construct their massive new tracts.

Because inventory was either non-existent, or simply out of price range, prospective home buyers would opt to buy in far-out places instead.

We’re beginning to see this phenomenon again thanks to dwindling inventory and higher and higher home prices.

It might explain why prospective buyers are beginning to look where they may not have initially looked for a home.

The difference today is that the work office environment has changed, partially due to COVID-19. In short, you might be able to work from home.

Homes Tends to Get Cheaper the Farther You Drive

  • There’s a good chance home prices are out of your budget in desirable areas
  • As such you might want to consider additional areas further outside your target zone
  • While sometimes frowned upon, the suburbs offer lots of advantages and are back en vogue
  • Benefits include more living space, outdoor features, and better schools (good for families)

The housing market is highly competitive at the moment. Anyone who has thought about buying a home knows that.

Today’s market consists of bidding wars, sky-high home prices, and lots of desperate home buyers. And despite some seasonal slowing, relief doesn’t appear near.

If you’ve been looking and it’s just not happening in your target area, you may want to broaden your search.

Not only are homes cheaper outside of city centers, they also tend to be newer, bigger, and sometimes nicer than the properties in the center of town.

Yes, location, location, location is still king in real estate, and always will be.

But while it can be fun to be closer to the action, the tradeoff might be a cheaper home with a lot more features. What’s not to like, other than the drive?

The Outskirts Can Get Hit Harder During a Downturn

One issue with the outskirts, other than the commute, is the potential for a big drop in property values.

It just so happens that new communities in the outskirts got hammered during the housing crisis because they often attracted the same type of buyer.

Someone who couldn’t afford a home in the city at peak prices and thus had to buy in the burbs or beyond, while still stretching their finances to qualify for a mortgage using the builder’s lender.

Before long, many homeowners in these tracts were underwater because they all bought at or near the height of the market, often with zero down financing and an adjustable-rate mortgage.

In other words, the crop of borrowers in these areas tends to be higher-risk compared with the more affluent borrowers living in the city.

So while that home in the exurbs may appear to be a bargain, there’s a reason aside from the location alone; the heightened risk during a downturn.

Major cities are insulated and constantly in demand, even if the economy takes a hit because many jobs are located in city centers.

It’s also more difficult to build new units. The same can’t be said about a random suburb that was only created to increase affordable housing inventory.

One should also factor in transportation costs to determine if it’s more affordable to buy outside of town. We all know gas isn’t cheap, even if it fluctuates in price.

Potential transportation costs (and perhaps opportunity cost while commuting) should factor in to the price you pay for a home.

The good news is electric vehicles are becoming more common as is remote work.

If You Have to Drive to Buy a Home, Should You Just Wait?

  • You might want to reconsider your home purchase if you can’t afford real estate at today’s prices
  • Sometimes it better to wait and get what you really want than settle and still pay a hefty price tag
  • There will always be ebbs and flows and opportunities in the future (prices won’t go up indefinitely)
  • And you won’t want to be stuck with a home in a faraway place you don’t even like

Let’s forget all the number crunching and just consider the climate at the moment.

If you have to drive to someplace you had no intention of living in, do you think it’s the right time to buy a home?

I’m not just referring to the suburbs vs. the city because there are plenty of great reasons to live in the burbs, as mentioned.

I’m referring to places further out than you intended, which were perhaps only brought to your attention by your real estate agent.

Are home prices maybe just a tad too high? Is it more beneficial to pump the brakes and keep renting where you enjoy living and wait for a better opportunity to get in?

As mentioned, home buyers got burned during the previous bust when they purchased homes in the outskirts.

I don’t see why it would be much different this time around, assuming there’s another major downturn.

This is especially if you’re buying out there for the same reason as everyone else, affordability.

It tells me home prices are getting a little too elevated, and many of your new neighbors will be in the same boat.

The silver lining is everyone will probably have a boring old fixed-rate mortgage, as opposed to a risky option arm, which could limit the damage.

But if you and the rest of your neighbors have a 3% down mortgage, it won’t take much for the first domino to fall.

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