THE BASIS POINT

American families need to make $85k to get by, and $91k to $115k to buy a home

 
 

A Gallup poll just reported U.S. families of 4 say they need to make $85,000 per year to survive. This is up from $58,000 in 2013, which is actually $76,400 when adjusted for inflation. Can these folks be homeowners with today’s home prices? Let’s take a quick look.

The Basis Point just updated our calculations of income needed to buy median priced homes.

Spoiler alert: Right now it takes somewhere between $91k to $115k to buy a home.

This is based on math that assumes a 5% down payment on median priced existing and newly built homes.

INCOME NEEDED TO BUY EXISTING HOME 2023

Existing homes currently have a median price of $388,800.

Right now, existing homes account for 86% of all U.S. home sales (newly built homes are the other 14% of sales)

– Monthly all-in cost on a $388,800 home purchase with 5% down and today’s 6.875% rate is $3268 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $91k* per year to qualify for this.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $108k* per year to qualify.

INCOME NEEDED TO BUY NEWLY BUILT HOME 2023

Newly built homes are a bit more expensive right now, with a median price of $420,800.

Right now, newly built homes account for 14% of all U.S. home sales (existing homes are the other 86% of sales)

– Monthly all-in cost on a $420,800 home purchase with 5% down and today’s rates of 6.875% would be $3528 (mortgage payment, insurance, taxes, mortgage insurance).

– If you had no other monthly debt, you’d need to make $98k* per year to qualify.

– If you had $600 in credit card, auto, and other monthly debt, you’d need to make $115k* per year to qualify.

INCOME RANGES NEEDED TO BUY A HOME 2023

So to recap, you need to make $91k to $108k to buy an existing home right now.

And you need to make $98k to $115k to buy a newly built home right now.

Lenders use total household income so this can be more than one person’s income.

This is assuming 5% down on today’s median prices, and rates that are near the peak of the cycle.

Just remember, if rates come down, home prices might rise.

So this is a decent guide for what it costs.

Also note that this is predicated on 43% debt-to-income ratios (DTI).

That means the monthly costs shown above are 43% of the income needed to qualify.

This is the cap most lenders go off of, but they can approve you for a higher DTI in certain circumstances.

Please reach out with any questions.

And below are links to the Gallup data plus details on home prices and affordability calculations.

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Reference:

Americans Say Families Need $85,000 to Get By

Newly built home prices $420,800 to start summer 2023. Can you afford this?

Existing home prices down $25k from June 2022 peak to $388,800. Is this affordable?

 

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