Mortgage rates dropped this past week amid mixed economic data and uncertainty around the Fed’s upcoming decision to either raise interest rates again or take this month off.
“While the potential for another rate hike raises the prospect of increased mortgage rates, the objective of curbing inflation will ultimately lead to a decline in mortgage rates, bringing much-desired stability to the market,” says Realtor.com economist Jiayi Xu.
Meanwhile, borrowers still contend with rates close to 7%, limiting the kind of home average families can afford.
Say you’re buying a $500,000 home. Assuming you have a 10% down payment and lock in a 30-year fixed mortgage at today’s average rate of 6.71%, you’d have to pay about $3,800 a month after property taxes and home insurance, according to estimates from Zillow.
Considering that most lenders want you to keep your housing expenses at or under 30% of your gross income, you’d need to earn at least $152,000 a year to afford that $500,000 home.
A year ago at this time, America’s most popular home loan averaged 5.23%.
“Even though the strong employment data suggests that households are in a favorable position to assess their housing options, the overarching concern of affordability continues to impose limitations on homebuyers,” says Xu.
Realtor.com reports the median listing price grew just 0.2% year-over-year — its slowest pace ever recorded (since 2016).
But “while the growth slowed to a halt, the homebuying costs haven’t come down.”
15-year fixed-rate mortgages
The average rate on a 15-year home loan also lowered from 6.18% to 6.07% this week. This time a year ago, the 15-year fixed-rate averaged 4.32%.
“While elevated rates and other affordability challenges remain, inventory continues to be the biggest obstacle for prospective homebuyers,” says Sam Khater, Freddie Mac’s chief economist.
New listings for sale have fallen 25% from last year — marking their lowest level of any early June on record — according to Redfin.
This has also driven the total number of homes on the market down 5% since a year ago to its lowest level on record for early June.
The U.S. housing crunch affects middle-income buyers more than any other income bracket — with a shortage of about 320,000 affordable homes, according to a report from the National Association of Realtors (NAR).
That’s any home priced at $256,000 or less, which NAR considers an affordable range for middle-income buyers, or households earning up to $75,000 a year.
Currently, middle-income buyers can afford less than a quarter of listings — compared to five years ago, when the group could afford to buy about half.
"Ongoing high housing costs and the scarcity of available homes continues to present budget challenges for many prospective buyers, and it's likely keeping some buyers in the rental market or on the sidelines and delaying their purchase until conditions improve," says Realtor.com chief economist Danielle Hale.
"Those who are able to overcome affordability constraints may be increasingly drawn to newly constructed homes or to the suburbs and beyond, both of which may offer buyers more realistic opportunities for homeownership in the near term."
Mortgage applications still declining
Demand for mortgages decreased 1.4% from last week, according to the Mortgage Bankers Association (MBA).
“Overall applications were more than 30% lower than a year ago, as borrowers continue to grapple with the higher rate environment,” says Joel Kan, vice president and deputy chief economist at the MBA.
“Purchase activity is constrained by reduced purchasing power from higher rates and the ongoing lack of for-sale inventory in the market, while there continues to be very little rate incentive for refinance borrowers.”
Refinance activity similarly fell by 1% — and is 42% lower than the same week a year ago.
In today's climate, the income required to purchase a $500,000 home varies greatly based on personal finances, down payment amount, and interest rate. However, assuming a market rate of 7% and a 10% down payment, your household income would need to be about $128,000 to afford a $500,000 home.
What House Can You Afford On 100k a Year Bottom Line. Your budget and financial situation will determine how much you can afford on a 100k salary, but in most cases, you'll likely qualify for a home worth between $350,000 to $500,000.
So, if your mortgage requires that you put down, say, 3%, the down payment needed for a $500K house would be $500,000 x 3% = $15,000. And a 20% down payment would require $100,000 ($500,000 x 20% = $100,000). You may be able to do those calculations in your head or using a calculator.
What income is required for a 400k mortgage? To afford a $400,000 house, borrowers need $55,600 in cash to put 10 percent down. With a 30-year mortgage, your monthly income should be at least $8200 and your monthly payments on existing debt should not exceed $981.
A mortgage on 200k salary, using the 2.5 rule, means you could afford $500,000 ($200,00 x 2.5). With a 4.5 percent interest rate and a 30-year term, your monthly payment would be $2533 and you'd pay $912,034 over the life of the mortgage due to interest.
The principal, interest and property mortgage insurance on $600,000 house with a 15% down payment and a 30-year, fixed-rate mortgage with 7% rate would cost $3,662. To afford this, you would need a monthly income of about $13,079 or an annual income of about $157,000.
This guideline states that you should spend no more than 28 percent of your income on housing costs, and no more than 36 percent on your total debt payments, including housing costs. (So that would also include credit card bills, car payments and any other debt you may carry.)
On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.
A $100K annual salary breaks down to about $8,333 per month. Applying the 28/36 rule, 28 percent of $8,333 equals $2,333. That's notably less than our estimated monthly home payment on a $600,000 house, $3,700, so no, you probably cannot reasonably afford a home purchase of that amount on your salary.
You'll usually need a credit score of at least 640 for the zero-down USDA loan program. VA loans with no money down usually require a minimum credit score of 580 to 620. Low-down-payment mortgages, including conforming loans and FHA loans, also require FICO scores of 580 to 620.
The interest rate on a loan directly affects the duration of a loan. Note: The interest rate is calculated using the hit and trial method. Therefore, it takes 30 years to complete the loan of $150,000 with $1,000 per monthly installment at a 0.585% monthly interest rate.
Yes, a single person can afford a $400,000 house if they meet the income requirements. Their monthly mortgage payment, combined with their other monthly debt obligations, shouldn't exceed 36% of their gross annual income.
How much income you need to buy a house in a specific price range largely depends on the type of loan you're applying for, where you live and other factors. For example, at current mortgage rates, borrowers with an FHA loan and a 10% down payment would need to earn about $70,000 a year to afford a $400,000 house.
Putting down this amount generally means you won't have to worry about private mortgage insurance (PMI), which eliminates one cost of home ownership. For a $400,000 home, a 20% down payment comes to $80,000. That means your loan is for $320,000.
The monthly cost of a $500,000 mortgage is $3,360.16, assuming a 30-year loan term and a 7.1% interest rate. Over the course of a year, you would pay $40,321.92 in combined principal and interest payments.
Assuming a 20 percent down payment on a 30-year fixed-rate loan at an interest rate of 7 percent, you can afford the payments on a $240,000 home, according to Bankrate's mortgage calculator.
(For example, someone earning $80,000 a year who is already paying $1,400 per month toward debt can likely only afford a house priced around $200,000.) The higher your DTI, the riskier you appear to mortgage lenders — which may drive up your interest rate and, therefore, your monthly payment.
Introduction: My name is Dean Jakubowski Ret, I am a enthusiastic, friendly, homely, handsome, zealous, brainy, elegant person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
