Ever since the pandemic in 2020, home prices in the United States have been rising steeply. As of December 2023, the median home price in the USA is $431,000, 5% more than the previous year.
In this growing market, having a $400k budget can only get you a decent family home. But how much do you need to earn to afford this?
In today’s article, we have tried to estimate the minimum income a person needs to buy a $400K home. We have also highlighted the factors that play a critical role in determining your affordability.
Also, at the end of the article, we have listed some neighborhoods in Florida where you can get a great home deal under $400K.
Minimum Income You Need To Afford A 400K House
Owning a home in the United States has become a considerable challenge nowadays. Not only the median home price but also mortgage rates are also increasing every day! On January 15, 2024, when I wrote this article, the interest rate climbed to 6.88%!
These two factors play a crucial role in deciding your minimum income to buy a house. For a $400K house, with a mortgage rate of 6.88%, the necessary data to calculate your minimum wage are-
- Property value- $400,000
- Mortgage/Interest rate – 6.88%
- Down payment- 7 to 20% (7% only for the first time buyers)
- Loan duration- 30 years
We have counted the standard loan duration of 30 years for the calculation. You may have the years fixed according to your choice.
The first thing you need to calculate is the down payment. First-time homeowners can deposit 7% of the total amount. But 20% is usually considered the standard practice. We are going to calculate with the standard value.
So, a 20% down payment means $80,000 to deposit at once, with no interest. And the rest of $320,000 needs to be paid within 30 years, meaning 360 monthly payments. Now, with an interest rate of 6.88%, you must pay $2,470 monthly to clear off your debt.
So, how much do you need to earn every month? There’s a rule of 28 in-home payments. It means you should only expend up to 28% of your monthly income to pay off your house loan.
So, if you pay $2,470 with 28% of your monthly income, you must earn at least $8,822 per month and $105,864 every year.
We have calculated the amount, keeping only the house loan in mind. If you have other debts like a car loan, you will have to earn more!
Factors That Determine Your Affordability
Having your home loan approved depends on a lot of factors. Along with your monthly income, things like a down payment and credit score also play a vital role in determining your affordability.
1. Down Payment
At the beginning of buying any property, you deposit a large amount at once. That’s called down payment. It’s usually your own money, so there’s no hassle of interest rates in a down payment.
As you borrow the rest of the money from the bank, you have to pay interest on it. The more your principal is, the more interest you have to pay. That’s why we always recommend making at least a 20% down payment.
First-time home buyers can deposit as little as 7% in down payment. However, they need to pay Private Mortgage Insurance until they gain 20% equity in the property. And not to mention, they have to pay more every month.
2. Interest Rates
Interest rates are one of the most important factors when it comes to buying a house. In the recent price hike, it is not possible for ordinary people to have $400K at once. They take loans and then pay them off in a long time. But they must pay interest on the principal they borrowed.
In January 2024, the average interest rate for a home loan is sky-high! 6.88% mortgage rate is not a small amount. But it varies from place to place. And factors like your credit score can influence this rate.
3. Debt To Income Ratio
Sum up the debt amount you pay each month. Divide it with your monthly income. And how to multiply it by 100. And you will have your monthly debt-to-income ratio. It is an essential factor in getting your application for a loan approved.
When you ask for a loan, the lenders see whether you have any other debt. If yes, they calculate how much of your monthly income it takes up. Then, they consider whether you will be able to carry on with an additional debt.
4. Credit Score
A credit score is one of the first things lenders look for when you apply for a loan. Sometimes, banks ask for a minimum credit score to qualify you as eligible for a mortgage loan. 620 is often the minimum score labeled as ‘fair.’
Also, a high credit score increases your chance of getting the loan approved immediately. Not only that, you can also get lower interest rates than others. Isn’t that amazing?
Best Neighborhoods To Buy A Home Under 400K In Florida
Florida is undoubtedly a wonderful place to live in. But is it possible to get a decent family home under $400K in Florida? Of course! We have listed a few neighborhoods where you can find your desired home.
1. Palm Isles, Boynton Beach
If you are looking for an incredible neighborhood to live in Florida, palm Isles of Boynton Beach can be a great option. It is a lively community with all the amenities you need for a standard life.
Buying your own home at Palm Isle is also budget-friendly. As of December 2023, the median home price is $354, clearly below the national average. A 6.76% interest rate may seem a bit high, but it is manageable thanks to the strong local economy.
There are variable options like condo apartments, townhouses, and single-family homes that will fit into your $400K budget.
2. Spring Hill, Hernando County
Spring Hill in Hernando County is a suburb of Tampa and situated on the west coast of Florida. The median home price of this neighborhood is $319k, which is highly affordable.
Some of the best schools in Florida are located in Hernando County, ensuring top-class education. Young parents highly prefer this neighborhood, which explains only 3% of the rental vacancy rate.
3. Poinciana, Osceola County
Consisting of 5 neighborhoods, Poinciana is a small but peaceful city in Florida. With a median home price of only $315K, it is one of the popular choices for residence. The mortgage rate is 6.64% for 30-year fixed loans.
Due to the economic home value, retirees are also attracted to relocating here after retirement. This is why the rental vacancy at Poinciana is only 1.3%.
4. Palm Bay, Brevard County
Palm Bay, the largest city on the east coast of Florida, is one of the fastest-growing neighborhoods. Due to its high employment rate and living quality, it has become a desirable place for families to have their dream home here.
$321k of median home price definitely helps to fulfill this dream. With a 6.46% interest rate on a 30 year fixed loan, pursuing your dream home won’t be too hard.
Getting a $400k house loan is not very difficult. But if you want to pay it off properly while maintaining the quality of your life, you need to know how much you need to earn monthly.