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Buyers eyeing the U.S. median home price of $429,971 must earn between $112,800 and $197,424 annually, based on traditional mortgage lending standards and current market conditions.
The salary range varies primarily due to down payment size, property tax rates and insurance costs. Buyers making a 20% down payment of $85,994 would face monthly payments of $2,632, requiring an annual income of $112,800 under standard lending guidelines.
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Those opting for a smaller 5% down payment of $21,499 could see monthly costs surge to $4,607, demanding a yearly salary of $197,424. The payment jump stems from larger loan amounts, added private mortgage insurance requirements and higher property tax exposure.
Monthly payments breakdown into several components. At 20% down, principal and interest total $2,174 on a 30-year fixed mortgage at 6.5%. Property taxes add $358 monthly at a 1% rate, while basic homeowners insurance contributes $100.
Lower down payment scenarios carry steeper costs. The 5% down payment structure includes $2,582 in monthly principal and interest, up to $1,075 in property taxes at a 3% rate, $500 for premium insurance coverage and $450 for private mortgage insurance.
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Mortgage lenders typically follow the 28/36 rule when evaluating borrower qualifications. The guideline limits monthly housing costs to 28% of gross income, while total debt payments should not exceed 36%.
An alternative measure suggests buyers can afford homes priced at 2.5 times their annual income. Under that benchmark, the median $429,971 house requires earnings of $171,988 yearly.
The affordability challenge hits particularly hard for first-time buyers. A $36,000 gap exists between the U.S. median household income of $84,000 and the minimum income needed for a typical home purchase, according to Realtor.com data.
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“The salary needed to buy a median-priced home in the U.S. has nearly doubled since the start of the COVID-19 pandemic,” said Hannah Jones, senior economic analyst at Realtor.com.