In the last two years, prices for homes have risen dramatically due to the combined impact of a Global pandemic and housing shortages Home prices rose 30% between 2020 and 2022. according to Freddie Mac. By 2022, the median sales price a Home in the U.S. was $397,549 according to Redfin.
In the midst of all this, mortgage interest rates are also rising rapidly, making monthly payment even more difficult. Redfin reports that the average national mortgage rate is 6.9%. That’s 3.8 points higher last year.
There are a Many factors to Consider these things when deciding how much You can afford a home to buySalary is a A large piece of the equation. Sunday Review Recommends editors crunched these numbers to Take a look at the salary that one might earn. need to earn Please order to afford a Home in the U.S. for $400,000
The steep rise of home prices
The real estate industry’s wild ride over the past few years has been well documented.
The median sale price in October 2019 was $1,099 a According to the Census, home was valued at $293,109 to Redfin data. However, the January 2020 COVID-19 pandemic brought about a Perfect storm of market forces drove home prices up. This was reflected in record-low mortgage interest rates. a Scarcity of housing inventory caused people to stay put and stayed away from listing their homes for sale. This led to increased home-buying competition. a Remote work suddenly dominated.
“In 2021, the nation sold more homes than it had in the last five years,” Scott Bergmann is an agent for Realty ONE. “One of the biggest reasons home prices shot up so much was the low interest rates, which encouraged and excited more buyers to jump into the home-buying market. When more home buyers jumped into the market that increased demand—but supply did not increase…so that meant buyers were competing heavily for a home purchase, and a lot of buyers had to pay quite a bit over asking price, in order to be the front-runner with home sellers.”
Because buyers stretched themselves so much to They beat their competition and began to accept offers of $50,000 or higher than the asking price. Fast forward to 2022 and the result is a median home sales price that’s climbed to This combined with the recent rise in mortgage interest rates is $397 549 all across the country a Potential home buyers face a significant financial burden.
How Increased interest rates are affecting affordability
When it comes to interest rates, they are another important piece of the puzzle to The current state of housing affordability. The Federal Reserve increased the federal funds rates six times in the last year. This has pushed up the cost for consumer borrowing, including mortgages, over the past year.
According to RedfinIn January 2022, the average interest rate was 3.4%. However, by October they had increased to 6.9% on average. The mortgage payments and buyers have suffered tremendously as a result.
“In January, you could buy a $400,000 home and have a principal and interest payment of $1,550 per month at 3.125%. Now that rates are around 7%, a buyer’s monthly mortgage would increase by roughly $800 per month,” Derek Amos, Senior Mortgage Loan Originator at Amos. Mutual of Omaha Mortgage.
Unfortunately, rates will likely rise in the near-term. to Keep climbing, before they begin to fall again. Expect the Federal Reserve to be there. to An additional rate increase will be announced in December. “Rates will eventually come down. But it is possible that they will get closer to 9% before that happens. They will never be where they were in 2021,” Amos.
How much do You need to Make to afford a $400,000 Home
With all these factors in mind, here’s how to do it. much do You need to earn Please order to You can afford the current median sale price. a Home in the United States
According to Brian Walsh a CFP, senior manager of financial planning SoFi, a Your net or take-home pay for fin-tech companies should be between $10,500 and $12,500 to $11,000 per month to afford a $400,000 house. That would equal an annual salary of $400,000 to Between $165,000 and $165,000 to Walsh explained that the cost of $195,000 depends on your state, tax filing status, as well as other withholdings.
Walsh’s calculation is based on several cost assumptions.
“The average monthly payment for a $400,000 home is $3,037,” Walsh. “That’s based on the typical first time homebuyer down payment of 7%, average interest rate of 6.61%, average property tax rate of 1%, average homeowners insurance of $140 per month, and average Private Mortgage Insurance of 0.6%.”
Walsh’s salary guideline is also based on the idea that a Mortgage payment should not exceed 28% of your income, including property taxes. This recommendation is subject to your financial commitments and debt.
“If you have other major expenses such as debt payments or childcare, it may be a little more challenging to follow this rule of thumb,” Walsh explains.
It’s also important to It is worth noting that Walsh used the monthly mortgage payment figure Walsh provided for a There are many variables that can affect the $400,000 figure. If you take, for example, a Buyer brings a Larger down payment to You can reduce the amount you borrow and your monthly mortgage payments by using the table.
Additional, a The buyer has a Private Mortgage Insurance requires a downpayment of 20% or more. This is usually eliminated to reduce the cost. The geographical location a The overall cost of home can also be affected by insurance costs and property taxes.
Walsh’s conclusion? It is vital to Calculate the cost of your unique situation and budget. There are many options. a Mortgage calculator to Plug in your numbers to Learn exactly how much You can afford a home.
But he adds, there’s no denying, home buyers are in an increasingly difficult position as home prices climb.
“Borrowers will either need to have higher incomes or make larger down payments to keep their debt-to-income level reasonable,” Walsh concludes.
As the realty market continues to grow to evolve, so to do The salary requirements for home buyers. The importance of bringing a Larger down payment to The table will still be useful in current circumstances, but it won’t matter how difficult. much money You can bring to Make sure you are ready for the sale to Check the numbers carefully to confirm. a The mortgage payment is affordable and within your budget.