How Much Home You Can ACTUALLY Afford (By Income)
Published: 2025-02-12
Status:
Available
|
Analyzed
Published: 2025-02-12
Status:
Available
|
Analyzed
Predictions from this Video
Incorrect: 0
Prediction
Topic
Status
Buying a home is 38% more expensive than renting on average across the US.
"it costs households on average 38% more to buy than rent."
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The cost difference between buying and renting a home is at an all-time historical high.
"the premium for homeownership over renting is the highest it's ever been in history"
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Renting is financially more advantageous than buying if one plans to stay in a home for less than 7 years.
"if you plan to stay in your home for less than 7 years then renting tends to be the cheaper option"
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The longer a home is owned, the more effectively transaction costs can be amortized over time (10-20 years).
"generally the longer you own your home for the easier it is to spread these charges over a period of 10 to 20 years"
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For home purchases, it is advisable to plan on keeping the property for at least 10 years and to undertake cosmetic repairs personally.
"don't be afraid of doing some cosmetic repairs yourself to make it your perfect home and only purchase something that you plan to keep at least 10 years"
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The total annual cost of homeownership can be estimated at 9.35% of the property value, comprising mortgage, property tax, repairs, and other expenses.
"the cost of a property is really going to consist of a 7% mortgage 1.1% average property tax 1% for repairs and maintenance and 0.25% for everything else giving you a total of 9.35%"
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To afford a $500,000 home in 2025, an annual income of $145,000 is required based on the 28% rule.
"today in 2025 that's why under the 28% rule you would need to earn $145,000 a year to comfortably afford a $500,000 home"
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An annual income of $25,000 is needed to afford a $750,000 home.
"you would need to make $25,000 a year for a $750,000 home"
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To buy a $1 million home with a 7% interest rate and 20% down payment, an annual income of $285,000 is required.
"and you would need to make $285,000 to purchase a $1 million home at a 7% interest rate assuming a 20% down payment"
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An $80,000 median US household income is insufficient to afford the median-priced home ($427,000) in the US under the 28% rule.
"if you make the median household income in the United States of $80,000 a year under this rule you could not afford the median priced home in the United States which would cost $427,000 or $2,850 a month with $115,000 down"
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Lenders typically require a debt-to-income ratio of no more than 45% for mortgage qualification.
"most lenders want a debt to income ratio no higher than 45%"
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For an $8,000 monthly income, lenders limit total monthly debt payments to $3,600.
"if you make $8,000 a month A lender will want no more than $3,600 a month going towards all of your debts"
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With no other debts and an $8,000 monthly income, up to $3,600 can be allocated to housing, potentially affording a $530,000 home with 20% down.
"if you have no other debts and you make that $88,000 a month all $3,600 could go towards housing which in that case would buy you something in the $530,000 price range with of course 20% down"
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An income of $112,000 per month theoretically allows for affording an $800,000 home.
"if you make $112,000 a month you could theoretically afford an $800,000 home"
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To purchase a $1.2 million home, an income of approximately $188,000 per month is required.
"if you want to buy a $1.2 million home you'd need to make about $188,000 a month"
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A home priced at $2 million would require an income of approximately $30,000 per month.
"and at $2 million you're looking at $30,000 a month"
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With an annual income of $72,000, a monthly housing payment capped at $1,800 could afford a home around $260,000 under the 30% rule.
"if you make $72,000 a year your monthly payment would be limited to $1,800 a month month which would buy you something in the $260,000 price range"
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An annual income of $150,000 allows for affording a home in the $550,000 range based on the 30% rule.
"if you make $150,000 a year you could afford something in the $550,000 range"
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An annual income of $300,000 can comfortably afford a $1.1 million house based on the 30% rule.
"at $300,000 a year you could comfortably afford a $1.1 million house"
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A conservative guideline is to not purchase a home that costs more than three times your annual income.
"you do not buy a home that costs more than three times your annual income"
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With an annual income of $75,000, the home price should not exceed $225,000 based on the 3x income rule.
"if you make $75,000 a year your price point should be $225,000"
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An annual income of $100,000 supports purchasing a $300,000 home under the 3x income rule.
"if you make $100,000 a year that's a $300,000 home"
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With mortgage rates at 3%, a $60,000 income was sufficient to afford a $315,000 home.
"when mortgage rates were down at 3% a $60,000 income was enough to afford a home in the $315,000 price range"
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Due to increased costs, the home affordability for a $60,000 income is significantly lower in 2025 compared to when rates were 3%.
"but now with cost having increased the final number is significantly lower today in 2025"
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To comfortably rent a $2,800/month home, an annual income between $110,000 and $170,000 is recommended.
"if you want to rent this house for $2,800 a month you should be bringing in anywhere from $110 to $170,000"
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Renting a $4,000/month home ideally requires an annual income of $140,000 to $240,000.
"or what about this home for $4,000 a month ideally you should be making anywhere from $140 to $240,000 a year"
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A $10,000/month rental property suggests an ideal annual income range of $360,000 to $600,000.
"or this house for $10,000 a month you should be making anywhere from $360 to $600,000 a year"
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With a $5,000 monthly income, housing costs should be capped at $1,400, allowing for a $25,000 home purchase with 20% down and a 7% interest rate.
"if you make $5,000 a month your housing cost should not exceed $1,400 which is enough to afford a home in a $25,000 price point with 20% down at a 7% interest rate"
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Saving $100,000 and investing it at 4.5% could yield more than the mortgage principal paydown in the first year, making renting potentially more financially advantageous in the short term.
"if you have $100,000 saved up as a down payment you could just put that in a treasury making 4.5% and all of a sudden that $4500 more than offsets the money you would be gaining by paying down the mortgage"
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An annual income of $72,000 limits monthly housing payments to $1,800, affording a home around $260,000 based on the 30% rule.
"under this formula if you make $72,000 a year your monthly payment would be limited to $1,800 a month month which would buy you something in the $260,000 price range"
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An annual income of $150,000 supports affording a home in the $550,000 price range.
"if you make $150,000 a year you could afford something in the $550,000 range"
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Rent should not exceed 30% of gross income before taxes.
"we'll get the simplest part out of the way renting since this is a fixed cost the general rule of thumb is that your rent should exceed 30% of your gross income before taxes"
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An annual income of $300,000 makes a $1.1 million home purchase comfortable.
"at $300,000 a year you could comfortably afford a $1.1 million house"
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The 50/30/20 rule suggests allocating 50% of take-home pay to needs (including housing), 30% to wants, and 20% to savings/debt repayment.
"the 503020 rule which suggests that you spend no more than 50% of your take-home pay after taxes on needs like housing food and transportation 30% for wants like clothing travel and hobbies and 20% for additional savings in debt repayment"
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Despite rising interest rates, housing prices have surprisingly continued to increase.
"housing prices have completely defied the odds by continuing to go higher even despite higher interest rates"
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Ideally, rent should be kept under 20% of gross take-home pay before taxes.
"ideally you should keep your rent to under 20% of your gross take home pay before taxes"
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In the first year of homeownership, mortgage principal paydown is approximately $4,100, averaging $344 per month.
"in the first year you'd be paying down your mortgage by $4,100 or about $344 a month"
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The 28% rule suggests that no more than 28% of gross income should be spent on mortgage payments, including property taxes and insurance.
"the 28% rule this states that you should spend no more than 28% of your gross income on your mortgage payment which includes your property taxes and insurance"
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A $100,000 down payment invested in a treasury yielding 4.5% can generate $4,500, more than offsetting the first year's mortgage principal paydown.
"if you have $100,000 saved up as a down payment you could just put that in a treasury making 4.5% and all of a sudden that $4500 more than offsets the money you would be gaining by paying down the mortgage"
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In 2025, a $60,000 income can afford a significantly lower priced home compared to when mortgage rates were 3% due to increased costs.
"interest rates like just consider that when mortgage rates were down at 3% a $60,000 income was enough to afford a home in the $315,000 price range but now with cost having increased the final number is significantly lower today in 2025"
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When buying a home, it is recommended to compare interest rates from multiple lenders and negotiate a good deal with the seller.
"shop around your interest rate to find the lowest price then negotiate with the seller to get a good deal"
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To afford a $500,000 home under the 28% rule, an annual income of $145,000 is required in 2025.
"under the 28% rule you would need to earn $145,000 a year to comfortably afford a $500,000 home"
Pending
In 2025, the median US household income of $80,000 is insufficient to afford the median-priced home ($427,000) under the 28% rule.
"if you make the median household income in the United States of $80,000 a year under this rule you could not afford the median priced home in the United States which would cost $427,000 or $2,850 a month"
Pending
It is advisable to purchase a home with the intention of keeping it for a minimum of 10 years.
"only purchase something that you plan to keep at least 10 years"
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A $500,000 home will cost approximately $46,750 annually, or $3,895 monthly.
"it'll cost you $46,7 a year or $3,895 a month"
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Lenders generally require a debt-to-income ratio no higher than 45% for mortgage qualification.
"most lenders want a debt to income ratio no higher than 45%"
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A $650,000 home, using the 9.35% rule, costs $60,000 annually or $5,000 monthly, compared to a $3,500 monthly rental nearby.
"At 9.35% You Could See it'll cost you $60,000 a year or $5,000 a month versus this this home nearby for $3500 a month"
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With no other debts and an $88,000 monthly income, up to $3,600 can be allocated to housing, potentially allowing for a $530,000 home purchase with 20% down.
"if you have no other debts and you make that $88,000 a month all $3,600 could go towards housing which in that case would buy you something in the $530,000 price range with of course 20% down"
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If one needs to inquire about the cost of a luxury property, they likely cannot afford it.
"if you have to ask you can't yet afford it"
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In 2025, renting is financially cheaper than buying a home in all 50 US states.
"renting is cheaper than buying in all 50 states"
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To afford a $95 million home, an annual income of $50 million or $4.2 million per month is required according to the 3033 rule.
"using the 3033 rule you need to be making a minimum of $4.2 million a month or $50 million a year to be able to afford something like this"
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On average, buying a home costs 38% more than renting in the United States.
"across the United States it costs households on average 38% more to buy than rent"
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Renting is considered an underappreciated choice unless a great deal, low interest rate, or strong property value appreciation (5-7 years) is anticipated.
"unless I find a great deal get a really low interest rate or I'm super confident an area is going to be going up in value over the next 5 to 7 years I think renting is the underappreciated choice"
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The total annual cost of owning a property can be estimated at 9.35%, comprising 7% for mortgage, 1.1% for property tax, 1% for repairs/maintenance, and 0.25% for other costs.
"the cost of a property is really going to consist of a 7% mortgage 1.1% average property tax 1% for repairs and maintenance and 0.25% for everything else giving you a total of 9.35%"
Pending
Renting is generally the cheaper option if planning to stay in a home for less than 7 years.
"if you plan to stay in your home for less than 7 years then renting tends to be the cheaper option"
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A 7% mortgage interest rate is comparable to potential earnings in the stock market.
"a 7% mortgage is about on Pace with what you could earn in the stock market"
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Historically, housing has proven to be a resilient investment in the long term.
"long-term housing is still proven to be a very resilient investment"
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Despite current high costs, homeownership is achievable through diligent saving, research, and patience.
"owning is expensive right now but through diligent saving research and patience it's absolutely doable"
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