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If you are hoping to buy a house in today’s market, then it is important to know how much income you will need. You also need to consider a few other things, such as your credit score, budget, and the cost of the average house in the area you are interested in. In this blog post, we’ll discuss all this and more.
The average price of a house in the US has gone up by 20.3% this past year alone. And recently, inflation has skyrocketed, keeping up with rising home prices.
Regardless, now is still a good time to buy a home. Even though home prices are rising quickly, if you get in sooner than later, you can take advantage of home equity accumulation before prices continue to take off. Plus, even though mortgage rates are still somewhat low, they are also rising quickly. You may want to get in now before they continue to increase.
So, how much income do you need exactly to buy the average house? Well, that is a question that many people have asked themselves when looking at homes for sale.
It’s not easy to answer exactly because houses have different prices depending on location, type, and many other factors.
But experts suggest sticking to the 28/36 percent rule, which means you shouldn’t spend any more than 28% of your gross monthly income on a home, and no more than 36% of the total of all your debt, including all housing costs.
That means if you have a household income of $10,000 per month in gross earnings, $2,800 is the maximum you should spend in monthly mortgage payments on a home (28% of $100,000).
Of course, if you have been house hunting lately, the steadily rising housing prices may have convinced you that you need more money to afford a new home—but you don’t. Presently, the median price of a house is $327,514 in the US and is, therefore, more than affordable for most people.
That said, the amount of income needed to buy the average house varies based on where you live and what type of home you are looking at. And as previously mentioned, other factors also come into play when searching for a home, such as the price, size, amenities, and location.
For example, buying a new home in a more affordable neighborhood may require lower income but higher cash flow. In contrast, buying a house or new home closer to work or one located in a more expensive area may require a higher income but less cash flow.
As a result, there is no one answer that fits everyone. Nevertheless, to get a better idea of how much income you will need, your first step should be considering the current home prices in your area.
Some areas in the Pacific Northwest are very expensive, and among the more expensive housing markets in the country. Others are relatively affordable, depending on where you buy.
For instance, one of the most expensive areas to buy a home in this region is Seattle, WA, with an average home price of $834,356 in contrast, the average price of a home in less populated areas of Washington like Olympia is $489,093. Similarly, Tacoma, WA, is not far behind, with an average home price of $452,666
Portland, Oregon, is also quite pricey, with the average price for a home currently sitting at $522,162. However, it is worth mentioning that Oregon’s average cost of a home is only $474,360
Other notable states such as Colorado and Idaho have average purchase prices of $530,389 and $430,508 respectively. Colorado Springs has an average home price of $441,691, and Denver, an average home price of $556,332. Boise, ID, has also seen an incredible boom this year—the average cost of a home in this particular city is $460,448.
Thus, if you are interested in any of these areas, you can figure out the required income you will need to buy a house using these 2021 home prices mentioned above. This should give you an idea of where you might be able to afford a house.
If you cannot find an exact number, use an estimate. The estimate will likely be a good starting point, especially if you want to apply for a conventional mortgage. For FHA loans, lenders will likely need financial information (ex. the ratio of your annual income to your total expenditures).
As suggested, the amount of income needed to buy the average residential property varies based on where you live, as well as other factors. But it is not uncommon for the average American to spend between 30% and 40% of their household income on housing costs. Moreover, there are many factors that affect how much money you need to buy the average property.
The basic formula is the higher the down payment, the less money you need to buy a home. The higher the mortgage rate, the harder it is to buy real estate. The higher the interest rate on a mortgage, the better the deal you may get on a home. But if you do even a little research, you will see that there is a lot more wiggle room than that — yet most residential real estate or home buyers tend to focus on one category or another when really it is about the bigger picture.
Ultimately, the amount of money needed to buy an average home varies with the area, size of the home, and the average cost for a home in each area. Of course, some factors are universally applicable, such as income level, number of children, and household size, but others vary depending on the market and homeownership market conditions in your area.
Nevertheless, it is important to remember that today’s home loan programs are flexible, which means there really is no minimum wage required to buy a house. That said, if this is your first time making a home purchase, you shouldn’t go at it alone.
Instead, do yourself a favor–before you start your new home, search shop multiple lenders and speak with a local mortgage or real estate professional to get the assistance you need throughout the entire home buying process.
Disclaimer: This article includes home prices and real estate market data from third-party sources not associated with our company. We have simply compiled this information as an educational service for our readers.
Do you have questions about mortgages and the home loan process? Or would you like more information on how to find a home and realize your dreams of homeownership? If so, Sammamish Mortgage can help. We are a local mortgage company from Bellevue, Washington, serving the entire state, as well as Oregon, Idaho, and Colorado. We offer many mortgage programs and online financing options to buyers all over the Pacific Northwest and have been in the business of doing so since 1992. Contact us today with any questions you have about mortgages.
Whether you’re buying a home or ready to refinance, our professionals can help.
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No Obligation and transparency 24/7. Instantly compare live rates and costs from our network of lenders across the country. Real-time accurate rates and closing costs for a variety of loan programs custom to your specific situation.