Do You Earn Enough Money to Buy a Home Where You Live?
The first question you need to ask yourself when you’re looking to buy a home isn’t how many bathrooms you need or whether an in-ground pool is a good investment. It’s “how much house can I afford where I live?” House-buying budgets stretch further in some areas than others, and it’s important that you know exactly what you can afford (and what you can’t) before you get serious about making a purchase.
Buying a home is an expensive endeavor. You have to factor in a number of costs above and beyond the purchase price, and you also have to make sure that you have enough money to put down right at the beginning, as well as for your monthly mortgage payments. So how much will you need? Let’s go over what you should factor in when planning your budget.
Home buying costs to consider
The first number you’ll see attached to a home for sale is the purchase price, which is set by the seller. This amount is negotiable, though if a property is in high demand you’re unlikely to get the seller to budge. However, in a buyer’s market—when there are more homes for sale than buyers to purchase them—you may be able to bring that number down.
In addition to the sale price, there are quite a few other expensive costs tacked on to a home purchase. Specifically: closing costs. These include loan fees, taxes, credit running fees, title fees, home inspection fees, and more, and typically come out to about 3% to 4% of a home’s price, to be put down on the closing date. On a $100,000 home, that’s an extra $3,000 to $4,000 on top of your down payment, due before you even get the keys. If your down payment is under a certain percentage (usually under 20%), your lender will also require you to take on mortgage insurance costs.
Don’t feel too discouraged by all the expenses that go into buying a home. While it isn’t cheap, buying a home can be a great investment—you just have to be sure you buy what you can afford.
Ideal incomes for home purchases in popular U.S. cities
Your purchasing power is highly dependent on where you live. The cost of a one-bedroom home in the middle of a big city, for example, can afford you a three- or four-bedroom home with land in the suburbs or country. The general rule of thumb is that no more than 28% of your monthly income should go toward your mortgage.
Here’s what you can expend to spend—and how much you should be making—if you want to buy a home in one of these popular U.S. cities. Keep in mind that these incomes are what’s required to pay your monthly mortgage. You will also need to consider how much money you need to save for your down payment and to cover your closing costs.
New York City
Median home value: $677,500
20% down payment on median home value: $135,500
Closing costs on median home value: $20,325 - $27,100
Ideal income: Around $100,000 a year.
Median home value: $682,200
20% down payment on median home value: $136,440
Closing costs on median home value: $20,466 - $27,288
Ideal income: Around $100,000 a year.
Median home value: $228,600
20% down payment on median home value: $45,720
Closing costs on median home value: $6,858 - $9,144
Ideal income: Around $35,000 a year.
Median home value: $575,800
20% down payment on median home value: $115,160
Closing costs on median home value: $17,274 - $23,032
Ideal income: Around $85,000 a year.
Median home value: $334,500
20% down payment on median home value: $66,900
Closing costs on median home value: $10,035 - $13,380
Ideal income: Around $50,000 a year.
Median home value: $262,400
20% down payment on median home value: $52,480
Closing costs on median home value: $7,872 - $10,496
Ideal income: Around $30,000 a year.
Median home value: $198,400
20% down payment on median home value: $39,680
Closing costs on median home value: $5,952 - $7,936
Ideal income: Around $40,000 a year.
To make sure that you know exactly how much house you can afford to buy, work with a mortgage broker or financial advisor to go over your current financial situation—including income, credit score, and existing debt—and determine what you can realistically spend.
While 28% is generally provided as the maximum percentage of your monthly income that should go toward your mortgage, some people choose to spend as much as 36% of their income every month on housing payments. For your own situation, choose a percentage that aligns with your long-term financial goals and current financial health.
Need assistance buying a home? We can help. Learn more about your home-buying options and what you can afford to spend here.