Anyone with a hefty bank account has always been able to buy an urban palace. But if you're of more modest means and want to live in or near one of America's biggest cities, your might think your choices were between an apartment or a park bench.
Not at all, according to HSH.com, which recently updated its list of the salary you must earn to buy a home in 27 metropolitan regions. Using its own data on mortgage rates, as well as information from the National Association of Realtors, the site details just how much income it takes to afford the median-priced home in each area. The numbers range from little as $29,788.67 to as much as $137,129.55. Here's the list:
St. Louis: $31,275.49
Tampa, Florida: $36,437.56
Orlando, Florida: $43,243.95
San Antonio: $44,506.00
Minneapolis, Minnesota: $45,732.39
Sacramento, California: $58,113.87
Portland, Oregon: $60,307.71
Washington, D.C.: $78,503.56
Los Angeles: $85,964.88
New York: $89,788.69
San Diego: $98,534.22
San Francisco: $137,129.55
To calculate those salaries, HSH started with NAR-reported home prices from the first quarter of 2014. These are median prices, with as many homes in the metropolitan area costing less as cost more.
From there on, it's all reverse engineering. HSH subtracted a 20 percent down payment, and then used regional prevailing area mortgage rates to determine monthly payments. Then the site used a "standard" 28 percent front-end ratio, according to vice president Keith Gumbiner. That's the maximum portion of your monthly gross income you should spend on housing, he said.
HSH divided the monthly home payment by 0.28 to get the minimum necessary monthly gross income. Multiply by 12, and you have the baseline annual income to reasonably pay for the dwelling.
Depending on which city you live in -- or move to -- a fairly modest household income could pay for an average home you call your own.
Now, It's Time for the Catches
1. The down payment. "More is always better," Gumbinger said. Although HSH used the traditional 20 percent figure, "in most marketplaces, you can obtain financing for 10 percent down," he said.
That's a far cry from the no-verification, little-to-no-money-down days before financial crisis, but then, there are excellent reasons why the word "housing" was paired with "bubble," "crash" and "meltdown."
%VIRTUAL-article-sponsoredlinks%The impact of a smaller down payment can be considerable. Take this case on the DailyFinance True Cost of a Mortgage calculator: $250,000 house, 30-year 4.5 percent mortgage, $3,000 annual property taxes and $1,000 annual insurance payment. With $50,000 -- 20 percent -- down, the total monthly payment is $1,346.70.
Drop the down payment to $25,000, or 10 percent, and your lender will likely make you pay for private mortgage insurance as well. PMI helps cover the lender's possible losses if you default.
Depending on the size of the down payment and loan, PMI rates can run between 0.3 percent and 1.15 percent, according to Bankrate.com. Let's assume 0.5 percent, which is $1,125 a year. Now you're spending $1,567.13 a month. With 5 percent down ($12,500), that 0.5 percent PMI rate, if you can get it, becomes $1,187 a year, and your monthly nut is $1,635.63. By dropping the down payment to 5 percent, you've tacked on an extra $288.93 a month, or nearly $3,500 a year in after-tax income you'd need.
2. Other expenses. Owning a home includes more than promptly paying the bank and local taxes. If anything goes wrong, you're on the hook. That includes a roof that even in the 1990s saw better days, pipes that burst during the winter because of the broken furnace and the stove that is now on permanent vacation.
A homeowner should expect to pay between 1 percent and 4 percent of the value of their home in annual maintenance and repairs, according to U.S. News & World Report. For that $250,000 home, that's $2,500 a year, or $208.33 a month.
3. Location. A median price is unlikely to land you in prime territory -- a desirable school district, close to basic amenities, or offering a great view -- particularly as the numbers are for Metropolitan Statistical Areas, a federal designation that can cover a lot of area.
According to information the NAR sent to DailyFinance, "New York" is New York City, Long Island, plus suburbs in New York State and North Jersey. If you work in Manhattan, that could translate into a massive daily commute if you have to go far enough out to find that median home price. But wherever your home is, you're also not going to have to worry that a landlord might kick you out to turn the apartment building into a condo.