How Much Income Do You Need to Buy an Average Home?


How many houses can you afford?

According to the National Association of Realtors, the average home is now $ 341,600.

At first glance, this price may seem unaffordable for many hopeful homebuyers. But you don’t need a six-figure (or even close) salary to make it happen.

If you have a great credit score and a 20% down payment, you can actually afford a mid-priced home with an income of just $ 46,500.

Those with lower credit scores and smaller down payments will need a little more.

Are you hoping to buy a house in today’s market? Here’s what you’ll need to afford it.

Check your eligibility to buy a home (June 2, 2021)

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How much does a house cost in 2021?

In April 2021, a median-priced home cost $ 341,600.

According to the Federal Housing Finance Agency, prices rose 12.6% over the year and 3.5% in the first quarter of 2021 alone.

Home prices increased the most in Idaho (23.7%), Utah (19.2%), Arizona (17.4%), New Hampshire (16.2%) and Connecticut (15, 9%).

Demand has been a major factor behind soaring house prices.

With many tenants now working from home and some having saved their money during the pandemic, there is a strong pent-up demand for housing. Low interest rates are also fueling the fire.

Today’s home loan programs are flexible. There is no minimum income required to buy a home.

This leaves many first-time homebuyers wondering if they can afford a home in today’s real estate market.

The good news is that home loan programs are flexible. So there is no minimum income requirement to buy a house.

In fact, low-income buyers can often become homeowners if they know what mortgage to apply for.

Here are a few examples to show you how to determine your eligibility to buy a home based on your annual income and financial situation.

The income you would need to afford that $ 341,600 home is probably not as high as you might think.

However, the exact amount depends on the loan program you choose, your down payment amount, and your credit rating, among other factors.

Let’s look at some examples:

Preferred borrower (20% decrease)

“Primary” borrowers are those with the highest credit scores (think 740 or more) and large down payments, who qualify for a conventional loan.

You do do not must be a first-class borrower to buy a new home.

However, having good credit and a 20% down payment will make buying a home more affordable, even on low to moderate income.

Here’s what buying a $ 341,600 home would look like in this scenario:

  • House price: $ 341,600
  • Advance payment: $ 68,320 (20%)
  • Fixed interest rate *: 2.95%
  • Ready: Conventional fixed rate 30 years
  • Debts: Only $ 250 of existing monthly debt
  • Income required: $ 46,500

Keep in mind that this example does not include property taxes or home insurance, as these vary widely from borrower to borrower.

Your taxes and insurance will affect your monthly mortgage payment. It is therefore important to take this into account when determining how much home you can afford.

Use a mortgage calculator with property taxes, home insurance, and private mortgage insurance (PMI) to estimate your “real” home payment and your home buying budget.

Find out how much house you can afford (June 2, 2021)

FHA borrower (3.5% decrease)

Federal Housing Administration (FHA) loans are intended for borrowers with lower credit and / or income.

FHA mortgages are more flexible when it comes to your credit history and debt-to-income ratio (DTI) than conventional loans, making it easier to qualify.

This FHA loan example represents a borrower with a modest credit score (640 and above) and a minimum down payment.

Here’s what buying a mid-priced home would look like in this scenario:

  • House price: $ 341,600
  • Advance payment: $ 11,965 (3.5%)
  • Fixed interest rate *: 3.5%
  • Ready: FHA 30 years
  • Debts: $ 500 of existing monthly debt
  • Income required: $ 77,900

Again, this does not include property taxes, home insurance, or mortgage insurance fees. Your mortgage lender can help you estimate them on your behalf.

Note that a borrower using an FHA loan needs more income to purchase a home than a primary borrower. There are a few reasons for this.

First, this borrower pays a much lower down payment (3.5% of the purchase price, compared to 20% in the previous example). This means that they are borrowing a larger amount to buy the same house.

A larger loan amount means larger monthly payments. Therefore, the borrower needs a higher monthly income to afford the same house.

Additionally, this sample of homebuyers spend more of their gross monthly income on existing debt. This can include things like credit card payments, car payments, and student loans ($ 500 vs. $ 250 above).

The more you spend on monthly debt payments, the less money you have each month on a mortgage. This means that you will need more income to buy a house if you have a lot of existing debt.

Check your FHA loan eligibility (June 2, 2021)

VA or USDA borrower (0% down)

VA loans and USDA loans – backed by the United States Department of Veterans Affairs and the Department of Agriculture, respectively – are unique in that they do not require a down payment.

To be eligible for a VA loan, borrowers must be a veteran or an active duty member. To be eligible for USDA funding, you must purchase a home in an eligible “rural area” (many suburbs and small towns are eligible).

Here’s what buying a mid-priced home might look like in either scenario:

  • House price: $ 341,600
  • Advance payment: Zero
  • Fixed interest rate *: 3.25%
  • Ready: VA or USDA 30 years
  • Debts: $ 500 of existing monthly debt
  • Income required: $ 78,600

Calculations do not include mortgage insurance premiums (required on USDA loans), home insurance and property taxes.

USDA and VA borrowers might need more income than those using a conventional loan because they are not putting money in and therefore have a larger balance to pay off over the life of the loan.

There is no minimum income to qualify for a VA or USDA loan.

However, the USDA imposes income caps that limit the amount of household income you can earn while still being eligible. You can read more about the USDA income limits here.

Check your eligibility for a No-Down Mortgage (June 2, 2021)

* All interest rates are for illustrative purposes only. Your own mortgage interest rate will be different. You can check your mortgage eligibility at today’s mortgage rates here.

What affects your home buying budget?

As you can see, the amount you would need to buy a home is highly dependent on the loan program you choose, how much you can afford to deposit, and your mortgage rate.

Your existing debts, especially your debt-to-income ratio, and your credit rating also play an important role.

Generally, the higher your credit score, the lower your interest rate will be. This allows you to afford a more expensive home with less money.

If you’re worried that your income is too low to buy a house, the best thing you can do to increase your odds is to increase your FICO score and save as much as possible for a larger down payment.

You don’t need a 20% down payment, but every little bit helps reduce your loan amount and increase your home’s purchase price range.

Check your eligibility to buy a home

Home values ​​can go up, but you don’t need a big paycheck to afford one.

With a good credit rating, adequate down payment, and little debt, buying a home in today’s market is more affordable than you might think.

Check your new rate (June 2, 2021)

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