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Mortgage rates are making homeownership more expensive. Keep reading to see what a $300,000 home might look like for you.
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In October, the median existing home sold in the U.S. commanded a price of $391,800, according to the National Association of Realtors. But in some markets, it may be possible to find a nice home in good condition for $300,000.
You may be wondering what a home with that price tag will cost you in terms of a monthly mortgage payment. And the answer is, it depends.
How much are you putting down, and what interest rate can you get?
Three factors determine how much money you’ll owe your mortgage lender each month:
The purchase price of your homeThe mortgage rate you lock inThe amount of money you put down when you close on your mortgage
The stronger your credit score, the more likely you are to snag a competitive interest rate on a mortgage. But general market conditions will also dictate what that rate looks like.
So getting back to our big question, let’s say you’re able to make a 20% down payment on a $300,000 home, leaving you to borrow $240,000. Let’s also say you lock in a 7.29% interest rate on a 30-year fixed-rate mortgage, as that’s the average mortgage rate as of this writing, according to Freddie Mac. All told, that leaves you with a monthly payment of $1,645 for principal and interest on your mortgage.
Can you afford a $300,000 home?
As a general rule, you should aim to keep your housing costs to 30% of your take-home pay or less. So whether you can afford to buy a $300,000 home will depend on how much you earn and what your total recurring monthly housing costs look like.
That 30% shouldn’t just cover the monthly payment you owe on your mortgage. It should also include things like homeowners insurance, property taxes, and homeowners association (HOA) fees, if those apply to you.
Let’s say your homeowners insurance costs $100 a month and your annual property tax bill is $3,000, or $250 a month. Let’s also say you managed to buy outside of an HOA and don’t have to worry about dues. All told, you’re looking at about $2,000 a month in housing costs, which means you’d ideally need a monthly income of about $6,666 after taxes to support a $300,000 home purchase.
If you only bring home $5,800 a month, then a $300,000 home probably isn’t doable for you unless you can put more money down at closing. That could result in a lower monthly payment on your mortgage.
Perhaps you’re able to snag a lower interest rate on your mortgage due to having truly excellent credit. That, too, could give you more wiggle room with those numbers.
The point, however, is to make sure that any home you’re buying — whether it costs $300,000, less, or more — is affordable based on your income. If not, you risk falling behind on your housing payments, and the consequences could be quite severe and unfortunate. You’re better off waiting longer to buy rather than putting yourself in a position where you risk losing your home or becoming delinquent on other bills.
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