The Six-Figure Amount People Need To Comfortably Afford a Typical US House
Written by
Mary Green
Edited by
Joe Evans
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It’s no secret that housing costs (and the cost of living in general) have skyrocketed in recent years. House prices have climbed so high that many Americans are losing hope of ever owning a home. In a recent survey, one out of three Americans said homeownership shouldn’t even be part of the American dream anymore.
Here’s the question: Is homeownership really out of reach for many Americans? How much money do people need to be able to buy a typical U.S. home? This article will discuss how much money prospective homeowners need to sock away before they buy their first house. (Spoiler: it’s a six-digit figure.)
How Much Does the Typical US Home Cost?
Today, the median cost of a U.S. home is a whopping $412,000. Just four years ago, the median price of an American home was $317,100. That’s the biggest housing market increase in a while. Typically, housing costs rise gradually — but costs suddenly soared in 2020 and have yet to come back down.
How Much Should Down Payments Be?
Here’s the tricky part: Many people assume that the down payment on a home should be 20% of the home’s cost. By that logic, if the median home costs $412,000, the median down payment should be $82,400.
However, the 20% figure is just a guideline. Some homebuyers put down as little as 5% or even 3%. And some homebuyers make a larger down payment, paying 30% or more of the home’s value.
A good rule of thumb is that the larger your down payment is, the smaller your mortgage payments are. With a large down payment, you don’t need to borrow as much money, meaning a smaller monthly payment and less interest.
In other words, making a higher down payment keeps monthly costs lower, making it easier for homeowners to afford their other expenses.
How Much Should Homebuyers Have To Comfortably Buy a Home?
According to Zillow, homebuyers will need about $127,750 to make a down payment on a median priced home in a major U.S. metropolitan area. That’s just a little over 35% of the cost of a median home.
How did Zillow arrive at this figure? The real estate platform says homeowners should plan to spend about one-third of their monthly income on mortgage payments, property taxes and home insurance. Homeowners need the rest of their income for other expenses, as well as for savings and emergencies.
To keep house payments at one-third of their income, homebuyers earning the median salary for that area will need to make a 35% down payment on their home.
Home Prices by Region
If these figures have your head spinning, there’s something else to consider: Home prices vary depending on which region of the U.S. you’re in.
The Northeast is the most expensive region for housing, with homes selling for a median price of $701,500. Costs in the South and Midwest are much lower. In the South, the median sale price of a home is $371,600. The median sale price of a Midwestern home is $372,500.
Zillow estimates that in some parts of the U.S., homes are still affordable for median-income earners who pay less than 20% of their down payment. However, would-be homebuyers in high-cost areas will need to save up even more money for their down payments.
How Can Americans Afford To Buy Homes?
Homeownership costs can be discouraging. But if your heart is set on buying your own home, it’s an achievable dream. If your household income is below $100,000, there are still 42 states where you can afford homes. Choosing the right location can make all the difference in the world. The federal government also offers incentives and aid to first-time homebuyers, so it’s always worth applying.Â
Finally, remember that you may have to sacrifice a few features, like high-end finishes, swimming pools and closet space, when you pick out your first home. If homeownership is truly your dream, then those little sacrifices are probably worth it!
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