It's taken a few years, but you finally have enough to put 20% down on a home in your neighborhood — and that dream row house you've been eyeing has finally come on the market.
Don't get excited just yet; the sticker price is the minimum you have to worry about. Would your monthly mortgage payment really be affordable once you've accounted for costs like taxes or insurance?
Mortgage site HSH.com analyzed how much you'd have to earn in 50 major metro areas to truly afford the median home price there, taking into consideration not only the principal cost of the home, but also interest, taxes and insurance. They also assumed you'd be making a 20% down-payment and have a 28% debt-to-income ratio (both good guidelines for ensuring you're not buying more home than you can afford).
Nationally, the statistics weren't too bad. To afford the national median home price of $255,600, you'd have to make a little more than $56,000 a year, and your monthly payment would be $1,310. Drill down to specific cities, however, and you understand why "location, location, location" is definitely true.
The city that required the largest salary, by far, was San Jose, California, at $221,363, in order to afford a nearly $1.2 million home, followed closely by San Francisco, at $181,341. In fact, all the cities that required more than six-figure salaries were in California (San Diego and Los Angeles were the other two).
Cities on the other end of the affordability spectrum were Cleveland ($36,553); Oklahoma City ($37,854); and Buffalo, New York ($40,024). Curious to see where your city landed? (Here's the full list.)
New York City: $99,137, for a home costing $414,000
Los Angeles: $101,532, for a home costing $514,200
Seattle: $93,853, for a home costing $475,400
Miami: $71,644, for a home costing $335,000
Chicago: $64,682, for a home costing $264,300
These numbers may either be encouraging or a let-down, based on where you live and how much you make, but don't think of homeownership as a race; it's the biggest purchase you'll likely make in your lifetime, so it's wise to take your time. If you're still unsure whether you can truly afford to buy a home, consider taking your potential mortgage for a test drive — that is, live for a few months as if you actually had to pay for it.
If it feels doable and you're not totally scrimping to make it happen, then you may be ready to take the plunge (assuming, of course you've got that 20% down payment, plus extra stashed away to cover closing and other housing costs). But if it means you're eating cup ramen every day and one happy hour throws you off kilter, then it might be wise to rent longer. After all, you don't want your dream home turning into a budget nightmare.