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Fact or Fiction: How Much Income is Needed to Buy a Home?

affordability florida home prices home buying monthly payment mortgage Jun 09, 2024

There's been a lot of headlines about how much money you have to earn to buy a house lately.

In general, it's true that buying a home costs more today than it has in a long time.

But it's important that we get a full picture of affordability to understand it.

I think people count themselves out too early - assuming they don't make enough to afford buying a home based on the articles. πŸ˜₯

Here's an example of the type of graphic I'm talking about that you might have seen:

The map is from Bankrate and shows that you need to earn $114,771 in Florida to afford a median priced home.

Based on that, if you are earning $95,000 a year, you might think there's no point in trying to buy because you don't make enough. 😭

Before we go further, let's take a moment to acknowledge that every person's budget is different.

What you can qualify to purchase and what you can "afford" can be two different things. 🀷‍♂️

The difference between the two is usually your own personal preferences on budgeting.


Go Further Than The Headline

What few people read is how the websites come up with these numbers (called the methodology). 🧐

Here's an important blurb from Bankrate on their methods:

"The annual income needed to afford a median-price home is based on a person spending no more than 28% of their annual income on housing, as per the traditional 28/36 rule. Bankrate’s calculations did not include other monthly expenses or debts. Income data in this analysis is adjusted for inflation using the Consumer Price Index."

In simple terms, if you made $100,000 a year, they're limiting the monthly payment you could afford to $2,333.

(28% of $100,000 = $28,000 a year. Divide that by 12 and you get $2,333 a month.)

You can think to yourself if you feel like that's an affordable payment or not and see the point I'm making. πŸ€”

As real estate professionals out there know, that is a good bit lower than what any bank uses for approving homebuyers for a mortgage. 🏦

On an FHA loan, you'd be looking at an approval closer to 40-55% of your income.

Also, the home prices throughout each state can vary significantly from the state's median price so you need to make sure you're looking at what's relevant in your local market.

Lastly, let's take a look at an important example of how much the income needed to buy can change for a $350,000 house based on different debt levels:

The income needed to purchase the same home swings 90% in this example depending on the monthly payments of the debt they already have.

I think we can agree this makes it hard to apply a single number on affordability. 


Finding Opportunity

To keep things simple, journalists make assumptions when creating maps and charts showing affordability (among other topics).

Depending on the assumptions, it's easy to mislead people because there are so many personal details that impact buying a home.

βœ… The main point is that you shouldn't count yourself out without getting personalized advice and local information.

There's a wide range of loan products available and your home buying goals/budget don't usually line up with averages.

For example, look at how much the current median home price varies across these metro areas in Florida:

  • πŸŒ† Miami: $500,000
  • πŸ–οΈ Destin: $431.000
  • πŸ† Jacksonville: $375,000
  • 🐎 Ocala: $279,900

On top of that, there are more and less affordable areas in all markets. The median is just the middle price.

If you see an article that summarizes anything into a single number, be sure to take a look at how they calculated it.

And if you aren't sure about it, feel free to send it my way.

Don't count yourself out of the game. There are always ways to make your goals a reality. πŸš€

Dr. Alex Stewart


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