The average mortgage rate is over 7.10% now, per Mortgage News Daily.
This is almost exactly 1% higher than where they were when they bottomed out at 6.10% in mid-September.
The good news though is that rates remain almost a 1/2% lower than where they were at their peak in April of last year.
Income Necessary to Buy a $500,000 Home ($100,000 and $1 Million Too)
This is an estimate of the income necessary to buy a home with today’s rates.
Assumptions: 7.10% “Average” Interest Rate, 10% Down , 780 Credit Score, No Consumer Debt, 50% Debt Ratio (Fannie Mae Limit), PMI Rate 0.25%, 1.75% Property Tax Rate, $150/Month Insurance.
Please note that these assumption factors can vary tremendously from borrower to borrower and region to region, depending on credit, PMI provider, down payment, first-time homebuyer status, insurance rates (huge variance), and property taxes (that range from under 0.5% to almost 3% in some areas).
With the above assumptions though, the total payment would be about $4,000 per month – requiring income of $8,000 per month or $96,000 per year.
This implies that it would take less than $200,000 of income to buy a $1 million home with 10% down, as insurance costs do not increase commensurately with purchase price.
This also implies that it takes about $20,000 of income for every $100,000 of house a buyer might desire.
Solution: Temporary Buydowns
For buyers who are sensitive to today’s rates, we are encouraging them to pursue temporary buydowns still.
With a 2-1 temporary buydown, buyers can get a 2% below-market rate in year one of their mortgage, and 1% below-market rate in year two of their mortgage – and then return to today’s market rate in year three (IF they don’t refinance first).
It is important to remember though that buyers cannot pay for temporary buydowns, so the funds must come from the sellers, the lender, or other sources.
I discuss buydowns at length in this blog: The Beauty Of Buydowns.
