If you’re tired of throwing money out the window on rent, you might be considering purchasing a home.  So, how much money do you really need to buy a house?

We have talked about down payment funds and even zero down payment options, but what about income?  How much do you really need to make to purchase a home?

A recent report by the National Association of REALTORS® (NAR) answers that question.  The NAR study shows that families can buy a home with as little as $33,000 in annual income. And, even that figure might be a high estimate.

Each quarter, the National Association of REALTORS® (NAR) publishes its Metropolitan Median Area Prices and Affordability report.  The study uses NAR housing data and income statistics from the U.S. Office of Management and Budget to measure affordability in nearly 200 metros across the U.S.

Results from the fourth quarter of 2016 were surprising.  Both home prices are rising (up 5.7% nationwide in one year) and so are incomes. Jobs are more plentiful, and employers are paying more to retain employees.

If you combine these two factors you come out with low mortgage rates which makes, this the on of the most affordable housing markets in recent memory.

NAR says, “You don’t need a big income to buy a home,” estimating that a family needs an average income of around $43,000 to buy a home at the national median price, with 20% down.

Modest earners should check their home buying eligibility.

Have less income? You might still qualify. NAR’s methodology might be a bit too conservative.  NAR makes some assumptions when calculating income levels to buy an average home, the assumptions are quite conservative.

First, it assumes a 3.9% interest rate.  Mortgage rates for FHA home loans are currently well below that, as are, rates for other government-backed loans like the VA mortgage and the USDA loan.

Second, the trade group assumes only 25% of income is going toward the mortgage payment. This is conservative — even unrealistic — in many markets.

Mortgage companies, lending institutions and banks offer FHA loans.  The guidelines for FHA loans say the mortgage payment may consume 31% of the applicant’s income.

Even Fannie Mae and Freddie Mac loans, which are considered more conservative than FHA, allow greater than a 25% portion of the borrower’s income set aside for the mortgage payment.

If your choice is between a conservative home purchase and renting indefinitely, there’s actually less risk in buying.

According to a recent study by apartmentlist.com, rents rose nearly 8% in 2016 in some locales.  If you’re on a shoestring budget, buying a home may actually be smarter.

One of the factors lenders use to help you qualify is how much money you make.  The amount you make every month must be enough for you to be able to cover your mortgage as well as meet your other financial obligations.

It boils down to the simple fact, if you don’t earn enough money to cover your current obligations, plus the amount you are asking to borrow, you likely will not get financial approval to buy a home.

The only way to find out if you make enough money or not is to fun the numbers.  You will likely need the assistance of a professional to help you make this determination.

Please give us a call to discuss your particular situation and we can advise if you qualify for first time homebuyer or down payment assistance programs that may help you.

The Certo Team
55 N. Arizona Place Suite #103
Chandler, AZ 85225
602-429-6789