If you've ever purchased a home, you know the process can make your emotions run the gamut. Buying a home can be an exhilarating, frustrating, amazing, time consuming, beautiful undertaking. And while viewing the homes is exciting, it may be the easiest part of the process. The hardest? Finding the perfect home… and obtaining a loan for that home. But, depending on where you live and how much you make, you may be able to afford more than you think. Fortunately, in San Antonio and the surrounding areas that notion is truer than most places.
In terms of areas where properties are more affordable or less affordable, consider this data:
- San Francisco is very unaffordable unless you earn a top salary. To buy a home there, you need to make a staggering minimum of $142,000 a year.
- Los Angeles is surprisingly more affordable than New York City… but only by about $159.
- Cleveland and Detroit are both very affordable. In fact, you only need to earn between $32-35,000/ year.
- Looking for someplace warmer? In Florida, prices can range. While you need to earn $58,000/ year to live in Miami, you only need a minimum of $37,000/ year to live in Tampa.
Buying a home in San Antonio? You're in for some really good news. San Antonio happens to be one of the most affordable areas in the US and Texas. Given that the interest rates have dropped, as well as the fact that home affordability in the area is rivaled by few, buying a home can be more affordable than renting!
If you're looking at San Antonio real estate, you might be wondering how much you need to make each year in order to afford a mortgage and interest payments each month. While variables differ widely, as an example we asked expert San Antonio lender Gold Financial Services* to take a median-priced home in San Antonio and tell us what the salary needed to be able to afford it would be. They came up with the following:
Mortgage rate: 3.93 percent
Home price: $199,300
Monthly payment: $1,050
While this looks very simple, it’s important to know how Gold Financial Services got to this number. A few things went into the calculations: most importantly, the interest rate for a 30-year fixed-rate mortgage, and using 20% as the down payment. While a 20% down payment is no longer required, it definitely can take some of the financial burden off those monthly payments!
Just as a rule of thumb, most people can afford a home that costs up to three times their annual household income. Have little to no debt and putting 20% down can probably get you a house worth close to four times your annual income. Of course, these days buyers can qualify for a home loan with as little as 0% down if they are veterans and 3% down if they are civilians.**
But how much of a home you can afford isn’t based on salary alone. Lenders also look at the amount of debt you have versus the amount of income you bring in. The ratio is called "debt to income" and it helps to determine the maximum payment you can afford each month after all your other bills are paid. Lenders want to ensure they don't put you in a home that's more expensive than what you can afford.
Additionally, there are some other ratios mortgage lenders use to determine how much they will lend to a borrower. Here are some pretty standard qualification ratios that show three common rules of home affordability.
Maximum mortgage payment (rule of 28): Remember that annual salary we mentioned before? The most important rule in determining how much home you can afford is that your monthly mortgage payment shouldn’t exceed 28 percent of your pre-tax monthly income. For example, if a household has a combined annual income of $80,000, their mortgage payment should not exceed $1,866.
Maximum total housing payment (rule of 32): This rule specifies that your total housing payments, including the mortgage, homeowner’s and private mortgage insurance [PMI],association fees, and property taxes, should not exceed 32 percent of your pre-tax monthly income. That means that for the same couple making $80,000 a year, the total monthly housing payment cannot exceed $2,133 per month.
Maximum monthly debt payments (rule of 40): Finally, all debt payments, including the house payment, your car or student loan payments, and minimum credit card payments should not be more than 40 percent of your pre-tax monthly income. In reference to the couple with the $80k income, they could not have total monthly debt payments exceeding $2,667. If they paid $500 per month in other debt (e.g. car payments, credit cards, or student loans), their monthly mortgage payment would be capped at $2,167. Expert tip: This rule means that if you have a large car payment or a lot of credit card debt, you will not be able to afford as much in mortgage payments. Consequentially, in many cases, banks won’t approve a mortgage until that debt is reduced or eliminated.
Keeping all this in mind, let’s look at a few examples of income and what it may be able to afford you.
Home Price: $80,000 Annual Salary Needed: Around $23,000
Home Price: $250,000 Annual Salary Needed: Around $75,000
Home Price: $500,000 Annual Salary Needed: Around $132,000
Not bad considering the average cost of a home in San Antonio is around $230,000!
Want to find out exactly how much home you can afford based on your exact income and expenses? Contact the experts at Gold Financial Services.
**Jeff Hamilton NMLS# 212824 | The Hamilton Group | Gold Financial Services | Corporate NMLS#129122 | Equal Housing Opportunity | Complaints: WWW.SML.TEXAS.GOV | Gold Financial Legal
** Note: If you put less than 20 percent down, your mortgage lender will required you to pay private mortgage insurance (PMI), which will increase your non-mortgage housing expenses and decrease how much house you can afford.