Prices are the second thing homebuyers think about. Their first thought is about the size of the payment. They want monthly bills to be as small a percentage of income as possible.
When searching for a home, a real estate agent considers income and debt levels to suggest an appropriate price range.
Mortgage brokers use the ratio of income to mortgage payment to determine whether a loan will be approved.
As the Federal Reserve raised interest rates, the average monthly mortgage payment as a percent of median monthly income climbed to levels last seen in the mid-1980s.
A mortgage payment that is 25% or less of a family's median income is considered affordable. Mortgages that account for more than 30% of income are unlikely to be approved.
And the chart below shows the percentage has almost doubled since the pandemic. At 27.4%, an affordable mortgage is out of reach for those without a high credit score.
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