When looking for a new home and especially if you’re relocating, a lot of questions come into play. Do you want to be close to your job? What’s the best school district for the kids? Two-story with a pool or sprawling ranch-style home on the outskirts of town? While the answers to these questions are somewhat critical, the biggest question is: do you know the income you need to buy a house?
Yes, indeed, a home mortgage can make or break you, and no one wants to be house poor. So, you need to do a bit of math to determine the income you need to buy a house no matter where you’re moving.
Home prices are on the rise in most of the largest metro areas of the United States. And, mortgage rates are higher than they’ve been in about seven years. So, if you are out home shopping or looking to relocate to another city, it can be a bit stressful.
The Income You Need to Buy a House Varies Greatly
According to an article published in Visual Capitalist, $257,600 is the median cost of a home in the U.S. Using this number, they state, “With a 20% down payment and a 4.90% mortgage rate, and taking into account what’s needed to pay principal, interest, taxes, and insurance (PITI) on the home, it would mean a prospective buyer would need to have $61,453.51 in salary to afford such a purchase.”
However, the median should not be your rule of thumb in any calculations, because this number could be considerably higher if you’re moving to a more costly metro area. Or it could be much lower if you’re moving to a cheaper region. For example, the median price for a home in Pittsburg is $141,625 compared to a whopping $1,250,000 for a home in San Jose. Those are the cheapest and most expensive places to buy homes in America right now, but there are plenty of other cities to consider, depending on your budget.
Along with San Jose, some of the other most expensive places to buy a house include San Diego (median home price $626,00), Boston ($460,300), New York City ($403,900), Denver ($438,300), and Portland ($389,00). A few of the least expensive locales (and their median home costs) include Cleveland ($150,00), Louisville ($180,100), Indianapolis ($185,200), and Birmingham ($202,300). You may not have a choice about what city you move to if you’re relocating due to your job responsibilities. But that’s another reason you should know the income you need to buy a house—before taking that job.
It is interesting to see how far housing costs have come since the 1960s—when the median price of homes was, according to Business Insider, $11,900 (or $96,681 taking inflation into account). Can you imagine?
Times have definitely changed as America has progressed. But it’s certainly not impossible to live the American dream, part of which is owning your dream home. Do your research, consult with your financial advisor, and determine the income you need to buy a house first. It makes the process much easier and a lot more fun if you start out knowing what you can afford.