What to Do When You Can't Afford Your Housing Market (2024)

Okay, guys. You’ve probably noticed how crazy the real estate market has been lately. If you’re thinking about buying a home but you’re frustrated by prices and interest rates and wondering, How are people affording houses? you’re not alone.

Home prices went bonkers in 2021 and 2022, and while they’ve been coming down recently—rising interest rates have priced many buyers out of the market.

In February 2023, the median sales price for an existing home was $363,000.¹ (By the way, an existing home is a house that’s been built and lived in before you buy it—not a brand-new one.)

High prices and interest rates really increase the pressure when you’re trying to save for a house. You might feel like you’ll never be able to afford a house unless you do something drastic.

It’s tempting to take advantage of “creative” financing (aka terrible home loan options) or spend more than you can afford just so you can get a home. That may be how some people are buying houses right now, but don’t do it! Buying a house you can’t actually afford puts you on the fast track to going broke.

Before diving headfirst into a financial disaster, know you have other options that won’t bust your budget. Here’s how to find a home you can afford.

Housing Market Affordability

So home priceshave leveled off in 2023, but that doesn’t mean prices are below 2020 numbers. Take a look at what’s happened the last few years:

You read that right—existing homes cost around $93,000 more than they did in 2020. No wonder so many people feel like they can’t afford a house!

And newly built homes are even more expensive. In fact, the National Association of Home Builders (NAHB) estimates new homes will cost around $425,800 in 2023. Out of 132.5 million American households, 96.5 million of them won’t be able to afford that median price.⁶So even if we see a ton of new houses being built, 7 out of 10 households will have a tough time paying for one.

But here’s some good news: You don’t have to buy a crazy expensive home. Yes, the median home price is pretty high at $363,000, but that just means that half of homes sold below that price and half of homes sold above that price. You should be able to find a starter home well below the median price. Yes, it’s possible!

You canfind a home you love and can afford—and I’m going to show you how to make that happen.

Defining Your Financial Boundaries

Before you look for homes, you have to knowhow much house you can really afford. That number should be based on your financial situation, not pressure caused by the rising prices in your housing market or what might be trending on social media.

If you can’t pay cash for your home, the next best option is getting the right mortgage loan. Follow these guidelines:

• Choose a 15-year fixed-rate conventional loan—the cheapest, quickest type of mortgage to pay off.
• Keep your monthly payment to no more than 25% of your take-home pay.
• If you’re a first-time home buyer, put at least 5–10% down. If this isn’t your first rodeo, aim for 10%—but 20% or more is even better because you’ll avoid paying PMI!
• Pay for closing costs and moving expenses with cash.
• Steer clear of FHA and VA loans.

Want to see what you can afford? Try ourmortgage calculator. And if you’re married, make sure you and your spouse are on the same page about what you want in a house.

Then be prepared: A lender will probably approve you for a much higher amount than you can afford. But just because you qualify for more money doesn’t mean you can afford to take it. Stick to the 25% rule, and you’ll be golden.

Once you know what affordability looks like for you, share your boundaries with your real estate agent. And don’t budge, guys! (Remember, they work for you.)

What to Do When You Can’t Afford the Housing Market

After you create your home-buying budget, you may find that you can’t afford your housing market. But don’t freak out just yet. Here are three options to help you afford a house:

Option 1: Save Longer

I’m gonna come right out and say it: If you don’t have the money, you shouldn’t buy a house. Period. If you risk buying a house when you’re not truly able to do so, you’re asking for trouble. But you can start saving.

Now, if you live in an expensive market, it’ll probably take longer to be financially ready to buy a home. Maybe you’re still paying off debt or saving a down payment. Maybe you live where your home-buying budget can’t support a mortgage just yet. That’s okay. It’s better to rent for a while and get in a good place with your money than have a house consume your whole world.

And there’s no shame in renting, guys. It helps you build up your savings—and patience. Plus, you get to call the landlord when something breaks instead of spending your hard-earned money to fix it!

If you want to buy a home in a pricey market, waiting may be your smartest move. In the meantime, keep saving. Your area may seem more affordable three years from now when you have ahefty down payment saved!

Option 2: Reset Your Expectations

Another option is to revisit your must-have list. A remodeled four-bedroom craftsman home on an acre lot might be out of your price range, so think about what you can change. A three-bedroom home, a half-acre lot or a ranch-style house that needs a little work could be a perfect fit for your budget.

And remember, your first home won’t be your forever home. It doesn’t need to have everything on your wish list because you’re probably going to move one day anyway.

Letting go of the idea of a luxury kitchen or gleaming hardwood floors might be tough, but it’s worth it to avoid getting in over your head financially. (It’s okay to have nice stuff, just don’t let your nice stuff have you.) Remember, you can always upgrade your home’s features down the road.

When you work with a real estate agent to get your expectations in line with what you can afford, you’d be surprised to find out you still have some great options!

Option 3: Broaden Your Search

If you’re anything like me, you may want to live close to the city—the excitement, the culture, the food. Or maybe you enjoy the peace and quiet of a suburban or country neighborhood. But broadening your search might change your mind about where you actually want to be.

While the differences between housing costs in cities and suburbs might flip-flop in an unusual market, home prices are usually more affordable outside the metro area.

And that’s worth moving for. In fact, recent data shows that 91% of suburban counties are seeing more inbound migration (people moving in) than outbound migration (people moving out). But in cities, it’s the opposite: 82% of cities have more people leaving than moving in. That trend is most noticeable in expensive places like San Francisco and New York.⁷

You may be stuck in a market where homeownership will always feel a little out of reach (I’m looking at you, Silicon Valley). But if you’re open to it,relocatingcan fast-track your home-buying dream.

Moving out of a housing market you can’t afford gives you a chance to get the most bang for your buck and save up for a down payment faster. And the good news is, you don’t have to go far—most people who move stay in the same state or general area.⁸ It might only take moving a few miles across the county line.

Option 4: Increase Your Income or Relocate

Okay, you lowered your expectations and broadened your search—and you still can’t find a house you can afford. What now? You might have to find a new job to increase your income or allow you to move to a different city with more affordable housing.

I know, getting a new job or moving to a new city can be scary, especially if you’re comfortable right where you are. But if buying a house is really important to you, you’ll have to face your fears and get uncomfortable.

Before you start your job search, figure out the minimum salary you’ll need to buy a house. Like I mentioned earlier, your monthly house payment (including principal, interest, insurance and HOA fees) should be no more than 25% of your take-home pay. So if your house payment is $2,000, your take-home pay should be about $8,000 a month or $96,000 a year.

Say you find a nice little starter house for $240,000. If you plug that price into ourmortgage calculator, you’ll see that the monthly payment (including principal, interest, insurance and HOA fees) is $2,065 (with a 6% interest rate and a 20% down payment). That puts your payment pretty close to 25% of your take-home pay.

Why 25%? I recommend this percentage so you’re not house poor when most of your paycheck goes toward the mortgage.

Ask a real estate agent for advice about how to target your search to areas you can afford.

What Not to Do When You Can’t Afford the Housing Market

When you really want something, logic sometimes goes out the window. Maybe you see one of your neighbors with a fancy new lawnmower or a snazzy-looking sports car. I’m sure I’m not the only one who splurged on something I thought would be life-changing only for it to end up stuffed in a kitchen cabinet or the back of my closet a few weeks later.

Stop comparing your life to everyone else’s. Yes, you mightreallywant a house, but don’t let that blind you into making a big financial mistake—like buying a home you can’t afford. Or even worse, falling for home-buying scams likerent-to-own, seller financing or anadjustable rate mortgage. Stay far away from those, and above all, stick to yourbudget!

What to Think About When Buying a House (by Age)

Okay, first, I want to be very clear: No matter how old you are, I always recommend you save at least a 10–20% down payment (5% for first-time home buyers), keep your monthly payment to no more than 25% of your take-home pay, and only get a 15-year fixed-rate mortgage.

But let’s face it—life changes pretty fast. One day, you’re young and carefree. The next, you’re cruising along in a minivan singing “Hakuna Matata.” And soon after that, you’re at your own retirement party.

Let’s talk about what affording a house looks like for your generation—and how you can use your stage of life to your advantage.

Baby Boomers

Most baby boomers are nearing retirement and likely looking for a house because you want to downsize or move closer to your adorable grandkids. You have a huge advantage in the housing market because you’ve had a lifetime to build up equity in your current house. You can use that equity wisely by selling your current home and paying cash for something smaller.

Don’t have much (or any) equity? Think carefully about how you plan to pay for your new home. After all, you don’t want your mortgage to take up too much of your income—or keep you from retiring.

Generation X

You’re about halfway through your career, the kids are growing up and heading off to college or trade school, and it feels like the right time to move.

The best part is you’ve got 10–20 years left in the workforce, so you can comfortably pay off a 15-year mortgage just in time for retirement! The trick here is to make sure your new home doesn’t put your financial future at risk. You should still put yourself in a good position to retire—without risking the kids’ college funds.

Millennials

Millennials are building their careers and families. You might feel like you’ll never be able to afford a house by the time you’re done paying for groceries and diapers. But you can. Your generation is now the backbone of the American workforce—so you’ve got tons of opportunities to earn money and save for a home.

Your earning power is a huge advantage, but keep in mind, it doesn’t mean you have to buy right now. Don’t rush into a purchase you feel pressured to make. First, take control of your money—then you’ll be able to afford a house.

Generation Z

Okay, I’m super impressed you’re already thinking about how to afford a house! Your biggest advantage is you’ve got loads of time, which is a good reason you shouldn’t buy just yet. It’s smart to wait until you have a good idea where your career, spouse and passions might take you.

But you can start taking steps to buy a house in a few years. The best way to do that is by working the7 Baby Steps. This process will help you stay out of debt, save money, and pay for your dream home.

Hunting for a Home? You Need a Pro on Your Side.

One of the biggest factors affecting home affordability is a shortage of homes for sale. Housing inventory across the country has been down for years.⁹ Remember the law of supply and demand? Low inventory increases competition for the available homes, which drives up price. So not only is it tough to find a home you can afford, but chances are, you’ll also be up against other buyers when you do. That’s where an experienced real estate agent comes in. They will . . .

• Know about properties before they hit the market, giving you a competitive edge
• Share information about your local housing market so you can house hunt with realistic expectations
• Be an expert negotiator and know how to get you the best deal on a home, even in a hot market
• Help you navigate the paperwork so you can close on your house with as little stress as possible

And the best real estate agents are RamseyTrusted. You can count on them to come up with a home-buying plan that works for you. RamseyTrusted agents know the ins and outs of the housing market in your area.

Find an expert real estate agent in your local market!

Rachel Cruze is a #1New York Timesbestselling author, financial expert, and host ofThe Rachel Cruze Show. Rachel writes and speaks on personal finances, budgeting, investing and money trends. As a co-host of The Ramsey Show, America’s second-largest talk radio show, Rachel reaches millions of weekly listeners with her personal finance advice. She has appeared on Good Morning America and Fox News and has been featured in publications such as Time, Real Simpleand Women’s Health magazines. Through her shows, books, syndicated columns and speaking events, Rachel shares fun, practical ways to take control of your money and create a life you love. Learn More.