The Income Needed to Buy a Typical Home Has Soared 80% Since 2020

The income needed to afford a typical home has increased by a staggering 80% in the past four years, highlighting just how much current home prices and mortgage rates are straining buyers' budgets.

Last month, homebuyers needed to make about $106,500 to afford the monthly mortgage payments for a typical home. That’s up from about $59,000 in January 2020, according to a new report from Zillow.

Four years ago, most households could comfortably cover the monthly payments on a typical home because the median income was about $66,000.

Incomes are much higher today, with the typical household bringing in about $81,000, according to Zillow’s estimates. However, that roughly 23% increase in median income isn't nearly enough to offset the $47,000 spike in what it takes to afford the typical home.

The report’s calculation of the income needed to afford a home is based on the assumption you shouldn’t spend more than 30% of your income on your total monthly payments, which include home insurance, property taxes and maintenance.

Ads by Money. We may be compensated if you click this ad.Ad

Your future dream home awaits — Unlock your interest rate now

Unlock your interest rate now

Your Information

State

AlabamaAlaskaArizonaArkansasCaliforniaColoradoConnecticutDelawareDistrict of ColumbiaFloridaGeorgiaHawaiiIdahoIllinoisIndianaIowaKansasKentuckyLouisianaMaineMarylandMassachusettsMichiganMinnesotaMississippiMissouriMontanaNebraskaNevadaNew HampshireNew JerseyNew MexicoNew YorkNorth CarolinaNorth DakotaOhioOklahomaOregonPennsylvaniaRhode IslandSouth CarolinaSouth DakotaTennesseeTexasUtahVermontVirginiaWashingtonWest VirginiaWisconsinWyoming

New Loan Typei

Not sure which loan type to choose? Go with a 30 Year Fixed Rate Loan, 90%+ of Americans do.

30 Year Fixed Rate Loan15 Year Fixed Rate Loan30 Year Fixed FHA Loan30 Year Fixed Veteran (VA) Loan7/6 Adjustable Rate Loan10/6 Adjustable Rate Loan30 Year Fixed Rate Jumbo Loan15 Year Fixed Rate Jumbo Loan5/6 Adjustable Rate Jumbo Loan7/6 Adjustable Rate Jumbo Loan

Loan Amounti

You can enter the mortgage loan amount, or the total home price if you have a downpayment.

$

I or my spouse have served in the military

Enables VA loan eligibility (0% down, no PMI)

Thank you for your service!

Your estimate reflects 0% down with no PMI.

Rate data provided by RateUpdate.com. Displayed by Mortgage Research Center, LLC, NMLS# 1907, Equal Housing Opportunity, Payments do not include taxes or insurance premiums. Actual payments will be greater with taxes and insurance included. Rate and Product details

Disclaimer

×

Disclaimer

The information on the daily averages includes financial product data that was in the MRC database at the time of publication. The assumptions used to calculate the rates are as follows: Rates are based on a $315,000 for conforming loans and $850,000 for non-conforming loans of an owner occupied, single-family residence with an 80% loan-to-value ratio, and rate lock ranging from 30 to 60 days. Rates are available for consumers for fico levels starting at 620 and up to 850. Rates are subject to change without notice. Quotes are for "no-cash-out" loans. All quotes are for products or loans that can be sold on the secondary market with no prepayment penalties nor negative amortization. Home Equity: The information on the daily averages includes financial product data that was in the Curinos database at the time of publication. Home Equity Loans - Rates are based on a fixed rate home equity loan for an owner-occupied residence, second lien, 15-year or 10- year repayment terms with an 80% loan-to-value ratio, Fico range of 740 and above, with a maximum loan amount of $50,000.00 . Home Equity Line of Credit - Rates are based on a variable rate, second lien revolving home equity line of credit for an owner-occupied residence with an 80% loan-to-value ratio, Fico range of 740 and above with a maximum line of credit of $50,000.00. Contact mediasupport@mortgageresearchcenter.com to have your rates included in this chart.

Your Estimated Rate

6.6%

Estimated interest rate*

Money’s Methodology

*Based on the U.S. average rate for consumers with an Exceptional Fico score (780+) getting a conventional loan, no points, and a 20% down payment. Actual rates may vary. Click "View Rates" to contact Mortgage Research Center Mortgage Rates (NMLS #1907) for a more accurate quote.

Find your actual rate today!

View Rates

Why homes are so much less affordable

With a 10% down payment, Zillow reports that the typical monthly mortgage payment was $2,188 in January, which is nearly double (up 96.4%) what it was four years ago.

Much of that increase is due to the pandemic boom in home values, which are 42.4% higher than the January 2020 level. The other major element is mortgage rates: The current average rate on a 30-year fixed-rate loan is 6.9%, according to Freddie Mac. In January 2020, rates were around 3.5%.

To cope with higher monthly payments, today’s homebuyers are relying on several strategies including renting out parts of their homes, moving to cheaper cities and even “cobuying” houses with friends, according to Zillow.

Home prices could continue to rise in 2024, further challenging affordability. A new Fannie Mae report forecasts a 3.8% increase in home prices this year, which is higher than the expectation last month of a 2.4% increase.

"As the dearth of listings boosts both prevailing values and expected future prices, the affordability concerns of prospective homebuyers are unlikely to fade soon," Terry Loebs, founder of research firm Pulsenomics, said in the report.

The one piece of good news is that Fannie Mae's panel of experts forecasts mortgage rates will fall to 6% by the end of the year.

More from Money:

Best Mortgage Lenders of February 2024

This Year May Be 'Tough' for Housing Affordability — But Help Is on the Way: HUD Secretary

Here’s the ‘Magic' Mortgage Rate That’ll Nudge Many People Into Buying Homes