The Expert Podcast

We've covered this in a couple of other videos about how much it takes to buy a house of a certain value, where you really almost have to be a millionaire to buy certain houses. But here's some math that was done by a third party, which validates some of this: how much do you need to earn to buy a $400,000 house? $400,000 is picked because that's about the median price of a house, and you might be surprised at how much it takes to comfortably buy a house of that price. Let's take a look at the math according to this analyst.

It says that your net take-home pay should be between $10,000 and $11,000 per month to afford a $400,000 house. As an annual salary, that is between $165,000 and $195,000, depending on what state you're in and your taxes and other factors. So, roughly $200,000 or close to it to buy a $400,000 house. $200,000 is a significant income—there are lots of people who make that and more, but there's also a lot of people who make less than that.

Here are the calculations: The average monthly payment for a $400,000 house is $3,037. That's based on a down payment of 7%, which is pretty low, an interest rate of 6.6%, which is probably going to go higher, a tax rate of 1% (though some states have tax rates of 2%), homeowners insurance of $140 per month (which is probably a little bit low), and PMI of half a percent. It's also based on the idea that your mortgage payment should be no more than 28% of your gross income. This may or may not apply to every person—if you have a lot of other debts, like car payments or student loans, you might want to make that lower. If you have less debt or lower lifestyle costs, you may be able to go a little higher. Also, the mortgage payment for a $400,000 house can vary depending on if you have a bigger down payment or if you're able to get a lower rate.

What about rates? Well, rates are likely to keep climbing before they start heading lower. The Federal Reserve is probably going to announce more rate hikes. It's possible they will get closer to 9% before they come down. They will never be where they were in 2021, so anybody waiting for that 3% or 4% rate is probably not going to get that anytime soon.

What about the pricing? How does $400,000 compare to what you can expect to buy a house for? That's almost exactly what the median home sales price was in 2022 nationwide. Now, there are some markets where it's easy to find a house for under $400,000, but there are a lot of places where $400,000 gets you nothing. In most of the metro areas in California, you can't find anything for $400,000, much less something livable. In some areas, you might find something in the threes, but it may not be substantial.

This gives you some idea of what you're looking at in the housing market. And like we've said before, there are many examples of being able to get a house in the $2-250k range that's at least livable. That will get you out of rent and start that ladder of climbing towards home equity and home ownership.