Suze Orman says it’s hard to buy a house today if you don’t have $100,000. Is He Right?

It takes more money to buy a house today than it did in the past.

Main idea

• The combination of high home prices and mortgage rates is pushing many buyers out of the housing market.
• You may need to get a solid down payment to buy a home today.

It’s no secret that today’s housing market is a challenge for buyers. Not only have housing prices risen nationally, but mortgage rates it is higher in many years.

In fact, as of this writing, the average 30-year mortgage is 6.42%, according to Freddie Mac. That’s more than double the rate consumers were likely to see a year ago.

It’s not surprising then, that many people are being pulled out of the housing market because of the affordability. In fact, these days, you may actually need a six-figure income to be able to buy a home in the first place.

Low and middle income people are being left out in the cold

In a recent story he Women & Money podcast, financial guru Suze Orman says it’s very difficult to buy a house these days if you don’t have $100,000. But is he right? Now, let’s crunch the numbers.

The National Association of Realtors reports that the average existing home sold in November had a price of $370,700. Assuming a 20% down payment and a mortgage of 6.42%, that would be monthly. mortgage payment of $1,859 for principal and interest.

But mortgage payments aren’t the only thing to think about when talking about affordability. In fact, as a general rule, house price should be limited to 30% of home owners’ wages. And those costs should include things like property taxes, Homeowners insuranceand HOA fees, which are common for homeowners and condos.

So, let’s multiply $1,859 by $341 a month to cover expenses like property taxes and insurance (and apparently, $341 is a low estimate). Up to $2,200.

Currently, someone earning $100,000 a year falls into the 24% tax bracket. This does not mean that their entire salary is taxed at that rate, but to keep things simple, we will assume so for this example. That would reduce the $100,000 salary down to $76,000, not subject to state taxes.

If we divide $76,000 by 12 months, that leaves $6,333 per month. And 30% of that $6,333 is $1,900. In fact, it seems that Orman’s statement about needing to earn $100,000 a year to buy a house today is a good one.

Of course, that doesn’t mean there aren’t exceptions. There are parts of the country where you can buy a house for less than $370,700. And some people may be able to bring a lot minimum wage on the table, resulting in lower monthly mortgage payments. But all that said, Orman’s presentation is pretty accurate.

It may take patience

The reason it takes a high down payment to buy a home today is because of housing costs. and mortgage rates are high. As soon as they all fall, the numbers should begin to change in relation to low-income workers. But until that happens, it may, of course, take a six-figure payment to buy a home. And those who do not have much income may have to sit and wait.