This Is the Median U.S. Home Value. Can You Afford It?

by Maurie Backman | Updated July 19, 2021 - First published on Sept. 9, 2020

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A For Sale sign in front of a two-story house surrounded by trees and a lawn.

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Home prices are rising. Can you keep up?

The summer of 2020 has been phenomenal for mortgage rates, and if you're looking to buy a home, you may be eager to move quickly. There's just one problem: Housing prices are high -- very high -- and the reason boils down to low inventory.

There were 18.2% fewer homes listed for purchase in June 2020 than the year before, according to the National Association of Realtors®, and new research by The Ascent reveals that home prices are up as a result. In fact, the median home value in the U.S. is $295,300 -- up 3.5% from a year before.

Now in some parts of the country, $295,300 is a steal. But if that's more than you can comfortably pay, you may be wondering whether homeownership is in your reach, or whether it pays to wait.

How much house can you afford?

As a general rule, your monthly housing costs should not exceed 30% of your take-home pay. If you stick to that, you should be able to calculate the top price you should pay for a home.

That said, that 30% should include your predictable housing expenses, like property taxes, homeowners insurance, private mortgage insurance (PMI), and HOA fees. You'll need to pay PMI if you make less than a 20% down payment on your home and HOA fees come into play if you buy a home that's part of a homeowners association. It doesn't necessarily have to include things like maintenance and repairs, which can be unpredictable and change from month to month.

Feeling lost? If so, you can use this mortgage calculator to determine how much you can afford to spend on a home based on your income. Imagine you bring home $4,500 a month. If so, your monthly housing costs should be capped at $1,350.

Now, say you're looking to buy a home that costs $295,300. Let's also assume you get a 30-year fixed mortgage at 3%. That rate is doable right now if you have good credit.

If you're able to make a 20% down payment of $59,060, your monthly mortgage payment will total $996 for principal and interest on your loan. But remember, that's not your only expense. You'll also need to pay for homeowners insurance and property taxes, which the calculator above estimates at $103.33 and $248.58, respectively, per month. All told, you're looking at $1,347.92, which means you're within your budget. However, it also assumes you're not subject to an HOA fee.

The numbers start to look different, however, if you don't make a 20% down payment. If you only put down $29,500 instead of $59,060, you're suddenly over budget. Your principal and interest payment will increase to $1,120.62 and you'll be paying $172.26 a month in the form of private mortgage insurance. Add in your homeowners insurance and property taxes, and that's $1,644.80 per month, which is more than 30% of your $4,500 monthly take-home pay.

Run the numbers

Home prices are pretty inflated these days, so it pays to make sure you don't commit to more than you can afford. If you're not sure whether to buy right now, use a calculator like the one above to see what expenses you're really looking at.

Of course, there are different variables you'll need to keep in mind when doing your number-crunching. If you move someplace with high property taxes, the calculator may not give you the most accurate number, so you'll need to adjust for that. You might also pay more or less in homeowners insurance, depending on where you live. But at the very least, an online calculator will help you determine whether it is realistic to buy right now.

If you come to realize that now's not a good time to buy, don't panic. There's a good chance mortgage rates will stay low for a while, so it could pay to wait until the housing market opens up and home prices start to come down.

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