Summarize this content to 2000 words in 6 paragraphs Knowing how much house you can afford helps you avoid financial stress and set realistic expectations. This can ensure you can comfortably manage mortgage payments and plan for additional homeownership costs.Why It MattersMany Americans struggle to buy homes due to high prices and interest rates. In 2020, with rates below 3%, Americans earning $150,000 could afford a $600,000 home. Today, with rates around 7%, they’d only afford a $400,000 home.
A person in a suit holds a calculator facing toward another person holding a pen.
A person in a suit holds a calculator facing toward another person holding a pen.
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What To KnowThe median monthly housing payment hit a record of $2,920 in 2024, rising 4.3 percent from 2023 and 86 percent from 2019, according to data from Redfin.Median-priced single-family homes and condos remain less affordable than historical averages in 98 percent of counties, according to ATTOM’s fourth-quarter 2024 U.S. Home Affordability Report.A mortgage calculator can help you estimate your monthly payments and determine how much house you can afford. Input different scenarios to see how changes in down payment and interest rates affect your budget. For example, using a mortgage calculator, you might find that a $300,000 home with a 7 percent interest rate and a 30-year term results in a monthly mortgage payment of approximately $1,996.Danielle Hale, chief economist for Realtor.com told Newsweek, advises that affordability calculators provide a helpful estimate, but homebuyers should adjust based on their personal financial situations. Someone with little debt and no children might be able to stretch their budget, while people with high childcare costs might prefer to spend less than the suggested amount.”While affordability calculators can help you get in the right ballpark, shoppers should consider these numbers as a guide and be sure to think about how their income and expenses compare,” said Hale.Your credit score helps determine the interest rate you’ll be offered on your mortgage and can influence the types of loans you’re eligible for. A higher credit score generally means lower interest rates and better loan terms, which can significantly affect your buying power.Most lenders require a down payment, which can range from 3 percent to 20 percent of the home’s purchase price. The amount you put down will affect your monthly mortgage payments and the overall cost of your loan. For example, if you’re buying a home for $300,000, a 10 percent down payment would be $30,000.If saving for a down payment is challenging, consider exploring down payment assistance programs designed to aid first-time buyers and low-to-moderate-income individuals. State, local housing agencies and nonprofit organizations provide assistance to help reduce the upfront cost.In addition to your mortgage, there are other costs of homeownership to consider. Examples include: Property taxes are annual charges set by local governments and can vary significantly by location. Homeowners insurance protects your home and belongings from damage or loss and is typically required by lenders. There are also maintenance costs to cover routine upkeep and unexpected repairs, such as fixing a leaky roof or replacing a broken appliance.Before you start house hunting, take a close look at your financial situation. Calculate your monthly income, existing debts and expenses.A common formula to determine your affordable monthly mortgage payment is the 28/36 rule, which suggests that your monthly housing costs (including principal, interest, taxes and insurance) should not exceed 28 percent of your gross monthly income, and your total monthly debt payments (including housing costs, credit cards, car loans, etc.) should not exceed 36 percent of your gross monthly income.For example, if your gross monthly income is $5,000, you should aim for housing costs no higher than $1,400 (28 percent of $5,000), and your total monthly debt payments should not exceed $1,800 (36 percent of $5,000).What People Are SayingAlex Beene, financial literacy instructor for the University of Tennessee at Martin, told Newsweek: “Unfortunately, economic trends of the last few weeks point to the housing market remaining largely the same for 2025 as it was in 2024. Mortgage interest rates remain at or near recent highs, and pricing in most markets is still too substantial to make a purchase a reality for most potential buyers.Ultimately, there’s much more at play with housing affordability than how the Fed sets interest rates. Treasury yields, unemployment rates, and future tax and regulation plans all play a role in dictating where housing affordability stands at a given time. As of right now, though, the coming year looks bleak for lower prices and interest rates.”Danielle Hale, chief economist for Realtor.com told Newsweek: “The 2025 Realtor.com Housing Forecast anticipates that buyers will get a mild boost from mortgage rates which are expected to move into the low 6 percent range by the end of 2025. Home prices, which are expected to increase by 3.7 percent in 2025, will remain high, but this growth rate is expected to be smaller than we’ve seen in previous years. Combined with mortgage rate relief, this will give household incomes a chance to catch up and modestly improve affordability.””Testing out a monthly payment that will be higher than your current housing payment by setting aside the extra is a great strategy that has two benefits. First, you’ll set aside savings that you can use to move and furnish your new home. Second, you’ll get a strong reality check on whether or not that higher monthly payment is workable.”Kevin Thompson, founder and CEO of 9i Capital Group, told Newsweek: “So far, the Trump administration has not introduced any significant proposals beyond stating the need to build more affordable housing. However, policies such as import tariffs and mass deportation could negatively impact housing prices, as these factors directly affect labor and material costs—two major inputs in the housing industry.””Bond investors, often referred to as “bond vigilantes,” have pushed ten-year yields above 4.66% at the time of this writing, which impacts what borrowers receive on their mortgage rates. With interest rates likely to remain higher for longer, mortgage rates will stay elevated, which could keep housing demand lower and prevent prices from rising rapidly. However, as long as home prices remain high, affordability challenges will persist.”What Happens NextThompson advises homebuyers to research all costs of homeownership, including property taxes, insurance, maintenance, and HOA fees, which vary by location. He also suggests making sure you understand mortgage payment structures to avoid future financial strain.Hale suggests potential homebuyers should test out a higher monthly payment by setting aside the extra amount. This strategy helps build savings for moving and furnishing, and also provides a reality check on whether the higher payment is feasible.If you can afford it, Beene things a new home is a smart choice because “Unlike existing home sellers, they have the flexibility to lower prices and offer more competitive interest rates.”
