The Average New Mortgage Amount Is $411,400 -- Can You Swing It?

by Maurie Backman | Updated July 19, 2021 - First published on May 25, 2021

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Couple holding keys to new house embrace in foreground, boxes in background.

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Home values are rising, and buyers are borrowing more money to keep up with them.

There's a reason so many buyers are struggling to purchase a home today. Inventory is extremely tight, and home prices have soared as a result. Not surprisingly, today's buyers are taking on higher mortgages to account for that.

Earlier this month, the average mortgage for a new home purchase reached $411,400 -- the highest home loan amount since February. But can you swing a mortgage that size? And how much of a mortgage should you feel comfortable taking on? Here's how to figure it out.

How much house can you afford?

As a general rule, it's a good idea to keep your monthly housing costs to 30% of your take-home pay or less. That way, you'll leave yourself enough room in your budget to cover your remaining expenses.

That 30% threshold, however, is not meant to cover a mortgage payment of principal and interest alone. Rather, that 30% should include all predictable monthly housing expenses you'll incur. These include:

  • Property taxes
  • Homeowners insurance premiums
  • Private mortgage insurance (which applies if you don't make a 20% down payment on a conventional home loan)
  • Homeowners association fees

To give yourself even more wiggle room in your budget, you may want to lob predictable home maintenance into that 30% threshold, too. As a general rule of thumb, home maintenance costs 1% to 4% of a home's value each year, and the older your home, the more you'll want to veer toward the higher end of that range. For example, say you buy a 100-year-old property that's not very updated, and it's worth $400,000. In that case, you could easily spend up to 4% of that amount, or $16,000 a year, on home maintenance. That's a little more than $1,300 a month.

On the other hand, if you buy a new construction home worth $400,000, your yearly maintenance costs might amount to just $4,000, or $333 a month. It's up to you whether you want to factor maintenance into your 30% calculation. If you do, you might stress less when other bills of yours climb.

Crunch the numbers

So now that you know about that 30% target, how can you figure out how much of a mortgage to take on? Just pull up a mortgage calculator and input your down payment, the length of your repayment period, and the interest rate you think you'll qualify for. You can check out today's mortgage rates to see where they stand on a national level, keeping in mind that the stronger your credit score, the lower a rate you're likely to get.

Now, say you have $50,000 on hand for a down payment and you think you'll qualify for a mortgage rate of 3.17% on a 30-year fixed loan. That's the average rate for that loan term as of this writing. If you're looking at a $250,000 home, that means you'll borrow $200,000, which leaves you with a monthly payment of $861 for principal and interest on your loan.You can use that number to help figure out whether a $200,000 loan works for you.

Of course, this is just one example, and you'll notice that it's much lower than the average $411,400 mortgage that was signed last week. But one thing to keep in mind about that figure is that there's a larger supply of higher-priced homes on the market today than starter homes or lower-priced properties. That could be skewing the average mortgage amount upward.

In fact, you shouldn't even think of pushing yourself to sign a $411,400 mortgage, or anything in that vicinity, if you know it's out of your price range. Overextending yourself in the course of buying a home could land you in unhealthy debt if you fall behind on your other bills, and it could put you at risk of losing your home if you struggle to keep up. You're better off running the numbers and landing on an affordable home loan that works for you.

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