Home Buying Is Still Ultra-Affordable In Many U.S. Cities
In Youngstown, Ohio, you can buy a home with an income of just $15,014 per year.
Many other cities across the U.S. boast ultra-affordable home buying, says the National Association of REALTORS®, which publishes a quarterly home affordability study.
Many home buyers assume they need a sky-high income, but they might do well to take another look at their local market.
Today’s flexible programs allow financing up to 100% of the home’s purchase price. And, if you have a down payment, the income you need to qualify goes down even more.
It’s worth looking into your home-buying eligibility.Verify your home-buying eligibility (Aug 9th, 2020)
National Association of REALTORS® Answers: “How Much Income Do I Need To Buy A Home?”
Each quarter, the National Association of REALTORS® (NAR) publishes its Metropolitan Median Area Prices and Affordability report, which examines home prices in about 180 U.S. cities.
The study goes a step further, though.
It determines required income to purchase a home in the area.
NAR assumes a thirty-year fixed mortgage at 4.2%, and a principal and interest payment equal to 25% of income. The agency publishes income required for three down payment levels.
- 5% down
- 10% down
- 20% down
Buyers who put 20% down in inexpensive areas of the U.S. need a very small income indeed.
For instance, the number one-ranked area for affordability is the Youngstown-Warren-Boardman area of Ohio and Pennsylvania.
In that metro, you need just over $15,000 annually to buy the median home price of $79,200. The monthly principal and interest payment would be just $309.
Most residents here would have no trouble buying. The average income in the region is around $38,000 per year according to the U.S. Bureau of Economic Analysis.
But this area is not the only ultra-affordable city. In fact, more than 50 cities in NAR’s report require an income of less than $30,000 per year to buy a home.
Think you are home-buying ineligible? Check your area’s median home price, then find your estimated payment on a mortgage calculator. Compare that to your gross income. A total payment including taxes and insurance is less than 31% of your income means there’s a good chance you qualify.
Homes Affordable Even Without A Large Down Payment
Making a 20% down payment can make your mortgage payment downright cheap in hundreds of cities across the U.S.
The reality is, though, that many home buyers have nowhere close to 20% down (although many renters mistakenly believe 20% down is the minimum).
Can you buy a home with just 5% down? How about 0%? Yes.
Conventional purchase loans can be had at 3-5% down.
But just because you don’t put a lot down doesn’t mean your monthly payment climbs out of reach.
For example, the average home in Buffalo, New York (number 25 of the 50 most affordable cities) costs around $125,000. An FHA loan at 4%, not including property taxes or insurance, would require the following monthly payments.
- Principal and interest: $576
- FHA mortgage insurance: $85
- Total: $661
No matter where you’re buying in the U.S. a low-down-payment mortgage is likely available to you.Verify your home-buying eligibility (Aug 9th, 2020)
Top 50 Affordable Cities
You might still be eligible to buy a home even if you don’t have a large income. This is especially true in and around the top 50 most affordable places to buy.
|City||Annual income to qualify (20% down)||Median Home Price|
|Wichita Falls, TX||$19,261||$101,600|
|Cedar Falls, IA||$21,384||$112,800|
|Rock Island, IL||$21,744||$114,700|
|Fort Wayne, IN||$23,318||$123,000|
|Fond du Lac, WI||$24,000||$126,600|
|Little Rock, AR||$25,801||$136,100|
|Cape Girardeau, MO||$26,351||$139,000|
|Cedar Rapids, IA||$26,920||$142,000|
|Oklahoma City, OK||$27,451||$144,800|
|El Paso, TX||$27,811||$146,700|
Keep in mind that surrounding regions are likely affordable as well. But, what if you live in an expensive area nowhere near these ultra-affordable locales?
Affording A Home In An Expensive Market
Not all markets in the U.S. are blessed will ultra-low home prices.
As a potential buyer, that can be frustrating. Even properties worth $400,000 and above are hard to find in these locations; they are considered starter homes.
By NAR’s calculation, you would need an annual income of more than $6,200 per month to afford a very modest home.
But there are creative ways to afford a home, even in expensive markets.
1. Pool your income
Many loan types are designed for those with modest incomes. And, they can be used in any area of the country. HomeReady™ is an example.
This program allows you to pool your income with that of family members who are currently living with you and will continue to do so. They do not need to be on the loan.
With their help, your monthly home payment can be up to 50% of borrowing applicants’ income. For example:
- Income of all borrowers on the application: $4,000
- Other household income not on the application: $1,000
- Total monthly payment including principal, interest, mortgage insurance, property taxes and insurance, and HOA: $2,000
This home buyer could qualify for a home of around $325,000 at today’s mortgage rates and mortgage insurance costs.
2. Bring your roommate
HomeReady™ allows you to use roommate and boarder income to qualify. You need 12 months’ history of cohabitation and documented income from the arrangement.
The roommate or boarder will need to live in the new home. If that’s the case, the resulting income can be added to your regular employment income, increasing the chances of qualifying.Verify your home-buying eligibility (Aug 9th, 2020)
3. Extend your commute
No one likes a long drive to work, but extending your commute a little can go a long way.
Many metros offer pockets of affordability within driving distance of employment centers. Plus, select suburban areas are eligible for the USDA loan — a 100% financing home loan that is designed for lower income borrowers.
The USDA mortgage is lenient about how much you make. In fact, income limits ensure only those who need it qualify.
Mortgage insurance and down payments are drastically lower than those for FHA. And, you don’t need a high credit score. The USDA loan program is specifically designed to get lower income applicants into homes, even in more expensive areas.
4. Try Airbnb
A rising trend in real estate is leveraging Airbnb to support a mortgage payment.
Most of the time, investors use this strategy to buy a rental property or second home to rent out and turn a profit. But you can use a similar approach to defray the costs of homeownership.
For instance, you purchase a 3-bedroom home when you only need two. You use one bedroom as a rental property.
Airbnb allows you to rent out a whole house or a single bedroom.
While you can’t use this income to qualify for a home loan, there are no rules against using part of your home for income once you own it. This strategy works well for those who are approved for a bigger payment than they’re comfortable with.
Use the future income to help with the mortgage payment. Your Airbnb guests will help you pay off your home and to build equity.
Checking Your Home-Buying Eligibility
Many home buyers don’t realize they are already qualified to buy a home — and just never checked.
That costs years of paying rent and missing out on rising home values.
Can you buy a home? The best way to find out is to check your eligibility to buy, which comes with an interest rate and home payment quote.
There’s no obligation to continue if you are not qualified or not satisfied for any reason. There’s nothing to lose except the few minutes it takes to complete the request online.Verify your home-buying eligibility (Aug 9th, 2020)