How Much You Have to Make to Afford a Starter Home in the US

With rising housing costs and stagnant wages, affording a starter home in the US has become difficult for young adults. So, how much do you need to make to afford a starter home in the US? This article will go into this.

What is a starter home?

It is typically a small, modestly priced home, often in a suburban or rural area, that is suitable for first-time homebuyers. According to the National Association of Realtors, the median price of a starter home in the US is around $230,000. This price can vary significantly depending on the location, with some cities having much higher median prices.

Affordability of a starter home

The general rule of thumb is that your housing costs should not exceed 30% of your monthly income. So, to afford a starter home, you would need to make at least three times the median price, which is $690,000 annually. However, this is an oversimplification as there are many other factors that go into determining the affordability of a home.

One crucial factor is the down payment. Most lenders require a down payment of 20%, which for a starter home would be around $46,000. Saving up for a down payment can be a significant hurdle for many first-time homebuyers, especially with high rental costs and student loan debt.

Another factor to consider is the interest rate on your mortgage. A higher interest rate means a higher monthly payment. With the current average interest rate of 3%, a monthly mortgage payment for a $230,000 home would be around $975. However, if the interest rate were to increase to 4%, the monthly payment would jump to $1,095.

The location of the home also plays a significant role in affordability. As mentioned earlier, the median price of a starter home can vary greatly depending on the location. For example, in San Francisco, the median price of a starter home is $600,000, while in Cleveland, it is only $99,000. So, where you choose to buy a home can significantly impact how much you need to make to afford it.

There are also other costs to consider, such as property taxes, homeowner's insurance, and maintenance expenses. These costs can add up and significantly impact the overall affordability of a home.

So, how much do you really need to make to afford a starter home in the US? The answer is not a one-size-fits-all number. It depends on various factors such as location, down payment, interest rates, and other expenses.

A safe estimate would be an annual salary of at least $80,000 to $100,000.

For many young adults, this may seem like an unattainable goal. However, there are ways to make homeownership more affordable, such as taking advantage of first-time homebuyer programs, negotiating with lenders for a lower interest rate, and considering less expensive areas to buy a home.

Conclusion

The dream of owning a home is still very much alive in the US. However, it is essential to be realistic about the costs and do thorough research before making such a significant financial decision. With careful planning and budgeting, owning a starter home can be within reach for many individuals and families.

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