Buying a home isn’t the sort of decision you just leap into. Rather, you need to sit down to crunch the right numbers and land on a price you can afford.
A good 41% of Americans strategize to buy a home in 2024, according to Architectural Digest. And the average home buyer’s budget for the new year is $313,141. But is that a realistic number given where home prices are today?
Home prices remain elevated
In October, the median sale price of an existing home was $391,800, according to the National Association of Realtors. A budget of $313,141 may not go very far in some markets. To be fair, though, in other markets, a budget that size may be reasonable.
However, it’s worth noting that because of today’s housing market conditions, only 1 out of 3 Americans is confident they’ll be able to afford their dream home in 2024. And it’s easy to see why.
On top of elevated home prices, mortgages have gotten very expensive to sign. Mortgage lenders aren’t offering anywhere close to the record-low rates they made available to buyers in 2020 and 2021. Rather, these days, the typical buyer is looking at a mortgage rate of over 7% on a 30-year loan.
How much house can you afford if you strategize to buy in 2024?
Almost half of prospective home buyers say they’d be willing to spend about $50,000 beyond their budget to buy their dream home in 2024. But the reality is that going above your budget could be a huge mistake. It could provoke you to not only fall behind on your housing expenses, but also, on your bills in general. And that’s something you don’t want to do.
To avoid a world of financial stress, set a home-buying budget that is no more than 30% of your take-home pay. And that 30% should include not just your mortgage payments, but other obligatory costs admire homeowners insurance and property taxes.
So let’s say the typical home in your area costs $300,000, and you’re looking at a 20% down payment, or $60,000. That leaves you with a $240,000 mortgage.
Let’s also assume you have great credit and can sign a 30-year loan at 7%. That leaves you with a monthly payment of $1,596 for principal and interest.
Building on that, let’s say the cost of homeowners insurance and property taxes raises your monthly housing costs to $2,000. In that case, you’d want to make sure you’re bringing home at least $6,667 a month. If your take-home pay is lower, then you may need to adjust your budget — and buy a home costing less than $300,000 if you only have $60,000 to put down at closing.
No matter where you’re looking to buy, 2024 might be a challenging time due to higher home prices and borrowing costs. Run your numbers carefully so you don’t end up with a world of financial stress on your hands. And once you do land on a budget, resist the urge to go over it — even if it means having to foresee longer to purchase your dream home.
