How big of a house can I afford?

Just how much home can you afford to buy? Understanding exactly what you can get for your money can be important for helping you to determine whether you should buy now or keep saving and buy later. You may have enough for a three-bedroom house. Or you may only have enough for a bedsit.

Below are just a few ways in which you can work out how much home you can afford.

What’s the average price of a home in the US?

As of this report from October 2020, the median price of a home in the US is $320,000. Since last year, home prices have climbed by a whopping 14%. This is in spite of the global pandemic - while initially, Covid-19 saw a fall in prices, there’s been a dramatic bounce back and real estate is booming again. This is good news for sellers, but not so much for those that are just buying 

What’s your budget?

It’s important to know your budget before shopping around for properties. Consider how much you’ve accumulated in savings or equity, so that you know exactly how much you can put down initially. If you’re likely to require a mortgage, you should also consider how much you’re realistically able to pay per month.

How much can you pay upfront?

The average mortgage down payment is roughly 20%. If you’re planning on buying a median-priced house in the US at $320,000, this means that you need to afford a down payment of $64,000. This could be accumulated through savings or through equity on a currently owned home. 

A lot of first-time buyers can’t afford to save this amount up. Fortunately, first-time buyers often have access to a much better range of mortgages with much lower down payments (especially if you’re under 30 and have a good credit score and reasonable income). In fact, the median down payment for first-time buyers in the US is closer to 6% (that’s a $19.2k down payment if you’re buying a $320k home).

Mortgages are available as low as 3% for those willing to shop around, but approval requirements may be higher (you may need a much higher income and an immaculate credit score). On a $320k home, a 3% down payment could mean only having to save up $9.6k. No down payment mortgages do exist, but they’re generally only available to very specific applicants such as veterans.

Of course, the down payment isn’t the only upfront cost to consider when buying a home. You should also consider surveyor fees, legal fees, valuation fees and moving fees (and possibly agency fees if you’re selling). All these extra expenses can come up to $3,000 in some cases. 

How much can you afford each month?

When taking out a mortgage, you should also consider how much you’ll be paying per month. The average mortgage lasts 25 years. If you’ve put down a 6% deposit of 19.2k on a $320k home - this means you’ll be paying $1,002.67 per month (not including interest).

$1000 per month is a lot of money. Ideally, you don’t want to be spending more than 30% of your monthly income on your mortgage - which means you’d need to be making more than $3,333 per month to reasonably afford this.

Longer-term mortgages of 40 years do exist. If you’re lucky enough to find one of these on a $320k home while paying a down payment of 6%, it could reduce your monthly repayment to $626.67 (again not including interest - which is likely to be higher on a longer-term mortgage). 

How are home prices affected by state?

$320,000 is the national median price across the country. If you look at individual states, the median price is very different. This can be worth considering if you have no plans of relocating far - average prices may be much higher in your state or they may be much lower.

Below are the median prices of five states compared to give you an idea of what you can buy in each state.

Hawaii - Median home price: $587,700

Hawaii is by far the most expensive state to buy property, beating California (2nd most expensive) and Massachusetts (3rd most expensive) by a long margin. 

For the value of $320k (the national median), you’re likely to get a one-bedroom apartment and possibly a two-bedroom apartment at a stretch (don’t expect it to be near the beach).

For $200k, you might just about afford a 300 sq ft studio condo in Hawaii. In other words, if you’re looking for a family home on a tight budget, the Aloha State might not be the best place to look. 

Colorado - Median home price: $313,000

Having the luxury of Colorado’s natural wonders on your doorstep comes at a price. It’s the fifth most expensive state to live - and yet its median price is under the national median.

For the value of $320k, expect a range of two-bedroom and three-bed properties (although perhaps not in Denver or Aspen, where you’re still likely to be limited to apartments). 

For $200k, you can get a two-bedroom condo in Colorado Spring - which is definitely more family-friendly than what you can get in Hawaii on a tight budget.  

Oregon - Median home price: $287,000

Oregon is the 9th most expensive state to buy property in, just below New York. The median price is a fair amount lower than the national median.

For $320k, you’ve got a lot of options in the Beaver State. Even in Portland, there are three-bedroom houses for sale for under $320k. These are likely to have limited space, but you’re still getting three bedrooms and a yard. 

For $200k, two-bedroom properties are well within budget. This could include a two-bedroom ranch house with a yard once you venture beyond the cities.

Illinois - Median home price: $187,200

Despite containing major cities such as Chicago and Springfield, properties in Illinois are on average a lot cheaper than the national median price.

For $320k, you can buy a three-bedroom or even a four-bedroom sizable suburban house in Quincy or even Chicago. 

For $200k, a three-bedroom house is still not out of reach - venture just beyond the cities and you’ll find plenty of reasonably-sized family homes within commuting distance. 

West Virginia - Median home price: $107,927

West Virginia is the cheapest place to buy property in the US. The median property price is nearly a third of the national average. 

What can you buy with $320k in West Virginia? You could buy a four or even a five-bedroom house with multiple bathrooms and over 2500 square feet.

For $200k meanwhile, you can afford a three-bedroom house with two bathrooms and over 2000 sq ft. Compare this to a 300sq ft studio apartment in Hawaii and you can see the difference location makes.

How else can location impact price?

Within a state and even within a city, the price can vary dramatically. Certain neighborhoods may have a better reputation than others - they could have better public transport links, more prestigious schools, a lower crime rate and more local amenities. This could push the price up a lot. Touristy areas are particularly likely to be more expensive.

Sometimes a small sacrifice can take a big amount of the price. A home directly next to a railway could be 20% cheaper than an identical house a few blocks away. Similarly, there are small privileges that can add a huge amount to the value - a coastal town property with a sea view could be 50% more expensive than a coastal town property without a sea view. 

What building features can push up the price?

The price of a property can also be affected by various building features. A three-bedroom house without these features could be drastically cheaper than a three-bedroom feature without these features. A few examples include:

  • High square footage: A three-bedroom property with 2000 sq ft of area is likely to be a lot more expensive than a three-bedroom property with 1500 sq ft. 
  • Good energy efficiency: Strong insulation and features like solar panels are also likely to push up the price (but also likely to save you money in energy in the long run).
  • A new kitchen/a new bathroom: A swanky new kitchen or bathroom could be 20% more expensive than a property with an old kitchen or bathroom. 
  • Modern technology: Integrated smart security or smart HVAC could also make a home more expensive. 

So how much home can I buy?

Clearly, it depends on a variety of factors including the type of mortgage you take out, the location of the property and the type of building you’re after. The key is to do your research and shop around. Online mortgage calculators and real estate listing sites will help you to get the best idea of what you can buy. The more thorough your research, the further you may be able to stretch your budget.