It may be a higher number than you’d think.
- The median home price recently rose to $375,300.
- That’s a 15% annual increase.
- You may be better off waiting to purchase a home.
It’s hardly a secret that homes have gotten more expensive over the past two years. We can thank a number of factors for that, including record-low inventory that’s caused a major disconnect between buyer demand and available housing supply.
In March, the median home sales price rose to $375,300, according to the National Association of Realtors. That represents a 15% increase from the same time one year prior.
If you’re not sure how much house you can afford, it’s important you get a handle on that number before making an offer on a property. Otherwise, you could wind up in over your head — and cash-strapped as a result.
How to figure out home affordability
As a general rule, your housing costs should not exceed 30% of your take-home income. To simplify things, that means if you bring home $5,000 each month, your housing costs should be capped at $1,500.
But to be clear, when we talk about housing costs, we don’t just mean the check you write to your mortgage loan servicer. Rather, that 30% should include all of your predictable housing expenses. Those should automatically include property taxes and homeowners insurance. And they may include things like HOA fees and private mortgage insurance, depending on your specific circumstances.
So can you afford a home that costs $375,300? Well, it depends on what your income looks like, the interest rate you’re able to snag on a mortgage, and the amount of money you have set aside for a down payment.
Let’s assume you’re able to make a 20% down payment on a $375,300 home. That means you get to avoid private mortgage insurance, which is a good thing.
If you sign a 30-year mortgage at 5.5%, you’ll be looking at a monthly payment of $1,702 for principal and interest. So if you bring home $5,000 a month, it means that off the bat, you really can’t afford the median home today, because that $1,702 doesn’t even factor in things like insurance and property taxes.
However, you may be able to afford a home that costs less. Or, maybe you have a lot more money to put down on your …….