How much do you need to earn to buy a house in California?
SAN FRANCISCO (KRON) — Home prices are down slightly in the Bay Area and other California cities, but a recent interest rate hike is still keeping people out of the housing market.
As of October 10, the average 30-year fixed interest rate was 7.04% according to Bankrate. The Federal Reserve has raised interest rates several times over the past year in an effort to fight inflation.
This sent mortgage payments for new California homebuyers skyrocketing. “The average payment (depending on the down payment) is $4,500 to $5,000 for principal and interest only,” explained Tim Yee, president of RE/MAX Gold Bay Area. “The change in interest rates added more than $1,000 to the buyer’s payment for a home at the median price. This is a substantial amount of the average borrower’s current budget and is redefining the Bay Area real estate market.
To learn more about the true costs of buying a home in California and the Bay Area, we dove into the numbers. Of course, any homebuyer’s monthly mortgage payment depends on the amount of money they have invested. The following numbers are based on buyers with credit scores over 700 and strong financial histories.
How much do you have to earn to afford a house in the bay?
It turns out, a little.
The median home in the Bay Area costs $1.3 million.
If a buyer chooses to deposit the standard 20% when buying a $1.3 million home, the total amount of principal, interest, taxes, and insurance would be approximately $7,272 per month.
Buyers buying with less than 20% down must also pay for private mortgage insurance. So if a buyer manages to thread the needle and buy a $1.3 million home with just 10% down payment, the monthly payments including principal, interest, taxes and insurance would be 8 $633.
According to Rent.com, housing costs should not exceed 30% of your income. To keep the payment on a median-priced home here in the Bay Area below 30% of your income, after depositing 20%, a person would need to earn around $24,240 per month or $290,880 per year.
Using an FHA Loan
If a person hopes to buy a home in California using the Federal Housing Administration (FHA) process, there are some limitations. The FHA is a federal home loan program that insures first-time home buyers’ loans and allows them to deposit as little as 3.5% when buying a home.
However, according to Yee, the maximum loan amount for FHA in the Bay Area is $970,800, so an FHA buyer would need to cover the 3.5% and cash balance to buy. (You can view the FHA limits in your county here.)
This means that someone looking to buy a median-priced home using an FHA loan would need to have a down payment of approximately $33,978 plus the remaining $329,200 that would not be covered by FHA when purchasing a home. a $1.3 million home.
How much do you need to earn to afford a house in California?
If you’re looking for a home in the state of California, the numbers are a bit lower than in the Bay Area, but not by much.
According to Redfin, the median price of a home in California is $761,700. The FHA limit for the state of California is much lower than the Bay Area at $420,680.
In order to purchase a mid-priced California home through FHA, a buyer would need to provide a down payment of $26,659 along with an additional $341,020 in cash.
If a buyer deposits the standard 20%, their monthly payment will be $5,008, including principal, interest, taxes and insurance. If a buyer only puts down 10%, they’ll see their mortgage payment settle at around $5,945.
To keep a house payment below 30% of your income after setting aside 20%, a person would need to earn around $16,693 per month or $200,316 per year – just to buy a median-priced home in California.