Suze Orman Says It’s Hard to Buy a Home Today if You Don’t Make at Least $100,000. Is She Right?

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It takes a lot more money to own a home today than it did in the past. 

It’s hardly a secret that today’s housing market is a challenging one for buyers. Not only are home prices elevated on a national level, but mortgage rates are around the highest they’ve been in several decades.

In fact, as of this writing, the average 30-year mortgage rate is 6.42%, according to Freddie Mac. That’s more than twice the rate that buyers would’ve been looking at about one year ago.

It’s not surprising, then, that many people are pulling out of the housing market due to affordability issues. In fact, these days, you might actually need a solid six-figure income to be able to swing a home purchase in the first place.

Lower and moderate earners are being left out in the cold

In a recent episode of her Women & Money podcast, financial guru Suze Orman said it’s really hard to buy a home today if you don’t make at least $100,000. But is she right? Well, let’s crunch the numbers.

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

But it’s not just mortgage payments to consider when talking about affordability. In fact, as a general rule, housing costs should be limited to 30% of homeowners’ take-home pay. And those costs should include things like property taxes, homeowners insurance, and HOA fees, which are common for condo and townhouse owners.

So, let’s inflate that $1,859 by $341 a month to account for expenses like property taxes and insurance (and most likely, that $341 is a lowball estimate). That brings it up to $2,200.

Meanwhile, someone earning $100,000 a year falls into the 24% tax bracket. That doesn’t mean they’re taxed on their entire salary at that rate, but to keep things simple, we’ll assume that for this illustration. That would whittle a $100,000 salary down to $76,000, not factoring in state taxes.

When we divide $76,000 by 12 months, we’re left with $6,333 a month. And 30% of that $6,333 is $1,900. So actually, it seems like Orman’s statement about needing to earn at least $100,000 a year to buy a home today is pretty spot-on.

Of course, this doesn’t mean there aren’t exceptions. There are parts of the country where it’s possible to buy a home for less than $370,700. And some people might be able to bring a larger down payment to the table, resulting in lower monthly mortgage payments. But all told, Orman’s projection is pretty accurate.

Patience may be necessary

The reason it takes such a high salary to afford a home today is that home prices and mortgage rates are up. Once both come down, the numbers should start to shift in favor of moderate earners. But until that happens, it might, indeed, take a six-figure salary to purchase a home. And those who don’t earn that much may have to sit tight and wait.

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