Starter Homes Are Becoming More Affordable: What First-Time Buyers Need to Know

Buying a first home in the U.S. is getting easier for many families, according to a report by the real estate company Redfin.
 

Key Income & Cost Figures

• Required Income: You now need to make $70,693 per year to afford a typical starter home. This is 1.5% lower than last year.
• Average Income Gap: The average American household earns about $17,000 more than this required threshold, giving buyers more financial room to breathe (up from a $12,500 gap last year).
• Overall Home Costs: This trend applies mainly to starter homes. To afford a typical median-priced U.S. home, buyers still need a significantly higher income of $109,796.

 

How Redfin Calculated These Numbers

Redfin based its findings on starter home sales from June, factoring in current mortgage interest rates and local property taxes.

• Down Payment Assumption: Calculations assume a 15% down payment.
• Affordability Rule: A home is labeled "affordable" if the monthly mortgage payment uses no more than 30% of the homebuyer's total income.

 

Important Things to Consider Before Buying

While lower required incomes are good news, buying a home still comes with financial challenges that require careful planning.

• Mortgage Rates Remain High: Even if home prices drop slightly, mortgage rates are still higher than they were a few years ago (hovering around 6.66%). This keeps monthly payments relatively high compared to the 3% to 4% rates seen between 2015 and 2021.
• Extra Cash Reserves: Earning above the required threshold helps buyers save extra cash for hidden expenses, such as closing costs, routine maintenance, and emergency home repairs.
• Shop Around for Lenders: Don't settle for the first lender you find. Compare loan options across multiple mortgage providers by looking at interest rates, Annual Percentage Rates (APR), loan fees, and closing costs to secure the best deal.

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