Home Buyers Should Earn an Additional $47,000 in 2021 to Afford a Home Comfortably

The cost of homeownership has significantly increased over the past year, with Zillow reporting that households now need an average income of $106,000 to comfortably afford a home. This marks an 80% increase from just 2020 when a household earning $59,000 could afford a mortgage without exceeding 30% of their income. The rise in mortgage payments has made it difficult for many Americans to enter the housing market, especially first-time buyers who lack equity. Housing costs have surged while incomes have failed to keep up, making it challenging for buyers to find affordable homes.

The income needed to afford a home varies across different cities, with the lowest household income required in cities like Pittsburgh, Memphis, and Cleveland and the highest in cities like San Jose, San Francisco, and Los Angeles. Prakash from Zillow notes that the pandemic has led to a surge in housing costs and a decrease in incomes, making it hard for buyers to find affordable options. Rising mortgage rates and home prices are also impacting potential sellers who are reluctant to sell and become buyers in today’s market, leading to a shortage of supply and higher prices in the housing market.

For buyers who fall below the $106,000 income level, there are still options available. Waiting and saving money for a larger down payment can help reduce the loan amount and monthly mortgage payments. Exploring more affordable areas or considering co-owning a home with friends or family can also make homeownership more attainable. Additionally, some sellers may be willing to offer incentives such as covering closing costs or participating in a mortgage buy-down program to attract buyers.

It is essential for buyers to avoid becoming “house poor,” which means spending an excessive amount of income on housing expenses. Realtors and lenders recommend carefully reviewing your budget and finances to determine how much house you can comfortably afford. While mortgage lenders have safeguards in place to ensure buyers can afford their loans, it is important for buyers to consider personal financial situations and set a budget that is sustainable for the long term. Financial preparation, research, and planning are crucial steps in determining affordability and readiness for homeownership.

In conclusion, the cost of homeownership has risen significantly in the past year, making it challenging for many Americans to afford a home. Buyers are advised to carefully assess their financial situation, explore affordable options, and consider incentives from sellers to make homeownership more attainable. Avoiding becoming “house poor” and setting a budget that is sustainable in the long term are key considerations when entering the housing market. By carefully preparing and planning, buyers can navigate the current housing market and find a home that meets their needs and financial capabilities.