The typical first-time home buyer in the United States now needs to earn nearly $120,000 to comfortably afford a median-priced home, according to a new analysis.
The median home in the US sells for $332,494. To comfortably afford such a property, first-time buyers would need to earn at least $119,769 to pay for monthly mortgage payments of $2,795 after a 10% down payment, per an analysis conducted by Clever Real Estate in April. The numbers are based on the current mortgage interest rates of 7.22% for a 30-year loan.
The study defines a home as "comfortably affordable" if it costs no more than 28% of a household's annual income. Currently, the median household in the US makes about $74,755, which is $45,000 less than needed to afford a median-priced home as a first-time buyer.
Based on the median household income, the most expensive home a first-time buyer could afford after a 10% down payment is $207,529, the study noted.
Can First-Time Buyers Afford a Median Home With a 20% Down?
First-time buyers who can afford a 20% down payment, which is $66,500 for a median-priced home, would need to pay monthly mortgage costs of $2,291 at the rate of 7.22%. To afford that without spending more than 28% of their gross income, the household must earn $98,202, about $23,000 more than the median income in the US.
Prior to buying a home, a first-time buyer must save $1,000 each month to come up with a 20% down payment, according to the study. At this rate, it would take more than five years to save $66,500. If the household saves only $500 a month, it would take them 11 years to have enough for a 20% down. However, that is only assuming home prices would not go higher.
For a household earning a median income to afford a $332,494 home with a 20% down payment, they would need mortgage rates to drop to at least 4%, the study noted. Mortgage rates are not expected to fall below 6% through 2024 and 2025.
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