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Salary Requirements to Buy a House Vary Greatly Depending on Where You Look

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Buying a house is one of the biggest financial transactions of your life. Unless you’ve got hundreds of thousands of extra dollars laying around, you’ll be financing the purchase with a mortgage loan. Your income — which we’ll unpack in detail — is a key ingredient when it comes to getting approved, but lenders have a few other things on their checklists.

So how much do you reasonably need to be earning to afford a median-priced home in the U.S.?

Skip ahead to find out:

The LendingTree data team took a deep dive into the numbers, analyzing public property data from ATTOM Data Solutions to find out what salary you’d need to afford a typical home in the top 50 biggest metro statistical areas in the U.S. We based our analysis not just on the median value of properties in each metro but also on the property tax rate. We also assumed that borrowers:

  • Secured a mortgage with a 4.5% interest rate
  • Had a 10% down payment
  • Paid a private mortgage insurance premium of 0.25%
  • Had a debt-to-income ratio of 28%

Before we jump into the study’s key findings, keep in mind that this is by no means the be-all-end-all of whether or not you can afford a house in your market. Remember, this is all based on median data. That means half the homes cost less than what’s listed, and half the people getting into homes have income that’s under the median.

“Folks shouldn’t feel discouraged by these median numbers if their particular income falls short of that level; it doesn’t mean they’re excluded from the market,” said Tendayi Kapfidze, LendingTree’s chief economist, who ran the analysis. “It just means they’ll probably have to search a little more diligently since supply is tighter.”

With that said, let’s unpack which cities have the highest—and lowest—salary requirements.

Which cities have the highest salary requirements
Rank Metro 2017 Median Home Price Monthly Mortgage Payment Annual income required
#1 San Jose-Sunnyvale-Santa Clara, CA $960,000 $5,142 $220,361
#2 San Francisco-Oakland-Hayward, CA $775,000 $4,151 $177,896
#3 Los Angeles-Long Beach-Anaheim, CA $592,000 $3,717 $135,889
#4 San Diego-Carlsbad, CA $525,000 $2,812 $120,510
#5 Seattle-Tacoma-Bellevue, WA $410,000 $8,268 $97,188
#6 New York-Newark-Jersey City, NY-NJ-PA $365,000 $1,979 $84,826
#7 Washington-Arlington-Alexandria, DC-VA-MD-WV $365,000 $1,979 $84,826
#8 Portland-Vancouver-Hillsboro, OR-WA $348,050 $1,937 $83,000
#9 Sacramento–Roseville–Arden-Arcade, CA $355,000 $1,901 $81,488
#10 Denver-Aurora-Lakewood, CO $360,000 $1,886 $80,835

(out of the top 50 U.S. metros)
Methodology: We assumed that borrowers secured a mortgage with a 4.5% interest rate; had a 10% down payment; paid a private mortgage insurance premium of 0.25%; and had a debt-to-income ratio of 28%.
Data source: ATTOM Data Solutions

Which cities have the lowest salary requirements
Rank Metro 2017 Median Home Price Monthly Mortgage Payment Annual income required
#41 Detroit-Warren-Dearborn, MI $143,500 $856 $36,681
#42 Pittsburgh, PA $140,000 $835 $35,786
#43 Buffalo-Cheektowaga-Niagara Falls, NY $140,000 $826 $35,386
#44 Louisville-Jefferson County, KY-IN $151,000 $821 $35,200
#45 Birmingham-Hoover, AL $155,011 $819 $35,083
#46 Indianapolis-Carmel-Anderson, IN $143,797 $786 $33,675
#47 Cleveland-Elyria, OH $128,500 $779 $33,397
#48 Rochester, NY $130,000 $767 $32,858
#49 Oklahoma City, OK $140,000 $764 $32,736
#50 Memphis, TN-MS-AR $140,000 $746 $31,986

(out of the top 50 U.S. metros)
Methodology: We assumed that borrowers secured a mortgage with a 4.5% interest rate; had a 10% down payment; paid a private mortgage insurance premium of 0.25%; and had a debt-to-income ratio of 28%.
Data source: ATTOM Data Solutions

Calculating salary requirements to buy a house

No matter how much you earn, the Consumer Financial Protection Bureau drives home a particularly smart rule of thumb for house hunters: The ideal total home payment is one that doesn’t exceed 28% of your total monthly income (before taxes).

Here’s how to crunch the numbers yourself, assuming a 10% down payment and 4.5% interest rate.

  • Figure out the property tax in your area: This number, which varies from market to market, plays directly into your housing costs. Our data found that, for example, the property tax rate in Birmingham, Ala. is 0.64%, while in Chicago, it’s 1.98%.
  • Determine your annual spend: After factoring in your monthly mortgage payment — including principal, interest, property tax and PMI, if applicable — multiply that number by 12 to determine your annual housing cost.
  • Compare your home cost with your income: From there, divide that annual figure by 0.28 to get your minimum salary requirement.

FYI, you can customize the above information by plugging your unique numbers into LendingTree’s Home Affordability Calculator.

What lenders are looking for (besides your salary)

  • A solid credit score: The higher your credit score, the more likely you are to get a home loan with the best rates and terms. When applying for a conventional loan, you’ll likely need a score of 620 or above. You have a little more wiggle room with FHA loans and VA loans, where you may be able to get away with a score in the 500 range.
  • A debt-to-income ratio that’s ideally 36% or less: Your DTI tells lenders how much of your income is going toward debt. To figure it out, tally up your monthly debt payments, then divide it by your gross monthly income. When applying for a mortgage, you don’t want this number to exceed 36%, however, you can likely go up to 45% if you meet certain credit and reserve criteria.
  • A solid down payment: Having a locked-and-loaded down payment isn’t a hard-and-fast requirement, but it will tip the mortgage approval scales in your favor because you’ll be viewed as less risky. Eligible borrowers can put as little as 3.5% down with an FHA loan; VA and USDA loans require zero down for those who qualify. In competitive markets, however, typical down payments can be much higher, as our past study shows.
  • Proof of reliable employment: A mortgage is a type of loan, so lenders need reassurance that you’ll be able to make good on your payments. They’re generally looking for at least two years of consistent, verifiable income.

Remember, these are the general requirements that lenders consider when reviewing your mortgage application — standing out to actual sellers is another story, especially since current homebuyers are up against a challenging housing market.

Kapfidze said there are a number of moving parts to consider. Chief among them? Dwindling supply paired with rising interest rates.

“There’s certainly a lack of inventory, so people who are trying to buy are facing a lot of competition, which means you need to be a very prepared buyer,” he said. “If you encounter a property that meets all your needs, you need to know you’re in the most advantageous position to make an offer that’s strong enough to compete against all the other buyers out there.”

One bright spot: It may be a seller’s market right now, but Kapfidze said it’s not having much of an impact on actual lending requirements. In other words, it’s more about making yourself attractive to the seller. (We’ll take a deep dive into this shortly.) Meanwhile, he added that we can expect inventory to stay tight for the foreseeable future, especially for homes selling for under $250,000.

The reason for this is twofold, according to Kapfidze. When the 2008 housing crisis happened, a lot of these homes were bought up by investors and taken off the market altogether. On top of that, because we had an extended period of low-interest rates, many homeowners locked themselves into low, fixed-rate mortgages, making them less likely to want to sell.

“If you currently have a fixed rate that’s under 3.5%, if you sell today and want to buy another house, now you’re buying at about a 4.5% rate,” said Kapfidze. “So instead of selling, you may say, get a home equity loan and simply do some renovations.”

Tips to buy a house in a competitive market

Now that you understand the general lending requirements and have a realistic idea of how much you need to be earning to afford a home in your closest metro area, it’s time to make your property offers really stand out from the pack. Again, supply is limited and interest rates are rising, so doing a little legwork on the front end is your best defense.

Begin your house hunt with a real estate agent who understands your local market. This is key because they could very well get wind of listings before they hit the market, effectively giving you a leg up in the competition.

Working an escalation clause into your agreement is another powerful way to stand out from the crowd. This is when you tell your agent the absolute highest amount you’re willing to spend. Then you authorize them to incrementally increase your bid to counter other offers, stopping when they hit your top number.

An escalation clause lets you automatically outbid other buyers, often in $500 increments. It’s a great strategy that I’ve found wins about 95% of the time because there’s no hesitation and you’re striking while the iron’s hot.

The other hugely important piece of the puzzle is getting pre-approved for a mortgage ahead of house hunting. This shows buyers you’re serious because any bid you make is backed by a letter from a lender saying they’re ready to move forward with financing. To get preapproved, the lender will pick through those key lending requirements mentioned above — your credit score, down payment size, employment history, debt-to-income ratio and the like — to come up with a maximum loan amount. You’re under no obligation to borrow the full amount, but getting preapproved narrows your focus to homes you can afford, while also reassuring sellers that there’s weight behind your offers.

To edge out the competition, it’s important to remember that you’re not just making a black-and-white offer; you’re also selling yourself.

A unique way to do this is to write a personalized letter to the seller, which really humanizes your offer. Tell them about yourself, why you’re in love with this home and what this purchase would mean to you and your family. In my experience, doing this immediately makes you stand out from other buyers.

Important takeaways

Yes, inventory is tight and interest rates are on the rise, but that doesn’t mean you’ll be automatically edged out of the housing market. It all comes down to finding strategic ways to stand out from the pack. It’s also wise to familiarize yourself with lending requirements and get preapproved before you begin the house hunt. On a similar note, understanding the income requirements for your market is another great way to get ahead of the game so that you’re only looking at houses you can actually afford. At the end of the day, it’s an informed buyer who’s in the best position to make an offer that sticks.


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