Income needed to afford a mortgage in 35 major US cities
Former Carrington Mortgage Holdings Executive Vice President Rick Sharga on the state of the housing market.
If you don’t make $200,000 per year, you might have a hard time buying a home in San Francisco.
A recent home affordability report from Unison, a homeownership investment company, analyzed the income would-be homeowners would need to earn in order to afford a mortgage in 35 major U.S. cities.
A homeowner would need to make six figures to pay a mortgage on a home valued at the median price in San Francisco, San Jose, urban Honolulu, Los Angeles, San Diego, Seattle, Washington and New York City. Those income estimations were calculated to include funds you'd need to make a 20 percent down payment and pay a 4.45 percent interest rate or a 3.99 percent interest rate — the average annual Freddie Mac 30-year fixed rates for 2018 and 2017, respectively.
On the flip side, a mortgage in some cities is much more affordable. Under the same conditions, a homeowner in Detroit would only need to earn $10,033 per year to afford the $251 monthly payment, which Unison’s report calculated assuming payments wouldn’t exceed 30 percent of a homebuyer’s gross income.
Homebuyers in Milwaukee, Wichita, Indianapolis and Columbus, Ohio could also afford a mortgage with an income of less than $30,000, according to the report.
It could take a homebuyer decades just to afford a down payment in the cities with the highest monthly payments, Unison said. For example, in San Francisco, where the median home value is more than $1 million, it would take someone earning the median income there 40 years to save a down payment.
That same person would then need to earn $202,094 per year to make mortgage payments, assuming they put down 20 percent, according to the report. If that person put down a smaller down payment of 10 percent, they would need to earn $239,539. If they put down 5 percent, they would need to earn $252,846 in order to afford monthly payments.
In Detroit, it would take someone earning the median income just seven years to save up a 20 percent down payment under the same conditions, according to the report.
Despite the expensive conditions in some cities, most would-be homeowners might actually have a better shot at affording a mortgage than they believe. Earlier this month, Fannie Mae released the results of a nationwide study that found most people think it’s harder to qualify than it really is.
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People overestimate the minimum credit score they need to qualify for a mortgage, as well as the minimum down payment, which is about 3 percent. Most people in the study said it's 10 percent.
Here’s how much money you’ll need to earn in order to afford mortgage payments in 35 major U.S. cities, according to Unison:
- San Francisco: $202,094
- San Jose: $152,697
- Urban Honolulu: $140,555
- Los Angeles: $121,939
- San Diego: $116,652
- Seattle: $114,217
- Washington, D.C.: $112,106
- New York City: $109,313
- Boston: $95,344
- Portland: $74,137
- Denver: $68,983
- Miami: $61,634
- Salt Lake City: $57,248
- Atlanta: $54,266
- Chicago: $51,031
- Minneapolis: $49,122
- Las Vegas: $45,998
- Phoenix: $42,937
- Richmond: $42,700
- Charlotte: $40,710
- Nashville: $40,210
- Tampa: $39,407
- Albuquerque: $39,407
- Dallas: $35,670
- Columbia: $34,435
- Hartford: $34,200
- Houston: $32,510
- Louisville: $32,181
- Philadelphia: $31,108
- Kansas City: $30,528
- Columbus: $29,618
- Indianapolis: $26,922
- Wichita: $25,547
- Milwaukee: $25,383
- Detroit: $251 $10,033
Fox Business' Brittany De Lea contributed to this report.