If you’re thinking about buying a house this year, there is good news and bad news.
Mortgage rates are expected to remain low through in 2021, according to forecasts by real estate marketplace Zillow. That’s good news for people who plan to borrow money to buy a house.
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However, the bad news is that home prices will continue to rise — albeit, at a slower pace than 2019, according to Zillow. That could make coming up with a 20% down payment on a home difficult for buyers, especially in expensive markets. And high home prices could put monthly mortgage payments out of reach for many — even though mortgage interest rates are low.
The rule of thumb is that you shouldn’t spend more than 30% of your income on housing. Families who spend more than that are considered cost-burdened and may have trouble paying for other necessities, according to the U.S. Department of Housing and Urban Development. Sticking to that rule of thumb, though, can be a challenge in some parts of the country where home prices are high and median household incomes aren’t quite high enough to make the math work, according to a new GOBankingRates study.
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GOBankingRates found what percentage of income would go toward paying a mortgage in each state using the following data:
- The median home value in each state, according to Zillow’s October 2019 housing data
- The median property tax rate in each state, according to Tax-Rates.org
- The national average 30-year fixed mortgage rate, according to the Federal Reserve Bank of St. Louis
- Median monthly and annual household income in each state, according to the Census Bureau
Zillow’s mortgage calculator was used to estimate monthly mortgage payments for each state based on median home values, tax rates and a 20% down payment. Then GOBankingRates calculated what percentage of the median household income that the estimated mortgage payments would be and ranked the states from lowest to highest percentage.
GOBankingRates also calculated the salary needed to afford a home using the mortgage payment estimate and the annual cost of necessities based on data from the Census Bureau and the Missouri Economic Research and Information Center. That number was doubled to find the annual salary needed in every state to satisfy the 50/30/20 rule, which recommends that necessities make up 50% of a household budget.
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The study found that, for the most part, a smaller salary is needed to afford a home in the South and Midwest. States in the West and Northeast tend to require higher salaries because home prices are higher. And there are some places where you won’t be able to afford a home unless you earn more than the median income.
Last updated: Aug. 13, 2021
