How much money do you actually need to make in order to buy a home today? It’s time we get right down to the ultimate homebuying question, especially for first time home buyers out there. David Sidoni has you covered as he shares a guide to the annual income salary needed to get approved for a loan and finally make that home purchase. More importantly, he digs deep into what you can do now if you find yourself not there yet. Get ready to embark on your homebuying journey with confidence!
—
How Much Money Do You Need To Make To Buy A Home – For REALS!
First Time Home Buyer Guide To Annual Income (Salary) Needed To Buy A Home.
Are you wondering how the hell you can afford to buy a home in 2024? I get it. I’m right there with you. The burning question is how much do you need to make in annual salary to get approved for a loan? In this episode, I will answer that question and then we’ll go deep into what you can do because you can do this if you don’t make enough right now.
—
What has happened in my How to Buy a Homies? Welcome in. If you’re new here, what’s up? How are you doing? Welcome to the number one show for the education and empowerment of first-time home buyers. The story goes that back in 2018, I got bummed out at the so-called service that was being dished out to first-time home buyers. At the beginning of 2019, I quit my broker to start this show and tell the whole world everything that they need to know to buy their first home just like you are one of the industry insiders.
You can use all the tips and the gimmicks to get you the best deal possible. Here we are years later with millions of downloads and thousands of people using the free information from this show to make their dreams happen for them. Even though I’ve been dishing out and dropping truth bombs and all kinds of kicking, how old can I sound? Drink. It’s early. Even though I’ve been dropping all the knowledge and giving the truth bomb, still every single day, what is the one question that people write to me or send me a DM or ask me a question? “How much money do I need to make to buy a home?”
I’ve done this episode four times or maybe the fifth. I’m going to do it again. Here we go. I promise you that I will get into the numbers and these numbers are going to be the numbers for right now in 2024. First, there’s a disclaimer. You have to hear this. Coming up is 30 seconds on how the math works for how much salary you need to earn to buy your first home. Thirty seconds to explain to you how this whole process works. Get your clock ready.
Nobody can tell you what your salary can afford in an online calculator, a blog, an Instagram post, a TikTok, a YouTube post, or any article online. There’s too much personal data that goes into it. It takes a formula. One variable in that formula that changes every single day is the mortgage interest rate, not to mention your credit score might change weekly along with your debt. No post anywhere online can give you an equation. It’ll be outdated and wrong in less than 24 hours.
The Numbers You Need
The last time I did this episode, I made myself do the 30 seconds again to try to get it under, but I’m not going to do that right now. That is absolutely 100% the information. You can’t get it simply. Now, what you came for, the numbers, even though I just told you in my 30-second freak out that these numbers probably aren’t going to be exactly for you. These numbers I got the same way I would have if you had gone to a unicorn lender now and asked them for the numbers.
I asked my Mortgage Pro for the numbers. I asked them on Tuesday, January 23, 2004, but I’m recording that here in February, but I have not got time to figure all this out and do it every single day. It’s about the same. If at that time, January 23, 2024, you’ve got 740 credit or above, you have zero debt, and you want to spend almost 50% of your monthly income on your mortgage and you’re putting 3% down. As of January 23, 2024, you could buy a $400,000 home with an estimated combined annual household income of $91,200 using that 3% down payment.
That’s about $7,600 a month in your take-home gross monthly income. Who’s pissed off? Who’s freaking out? Who wants to kill somebody right now? Don’t do that. I’m going to get the solutions. Here’s how that works. Your PITI plus PMI would cost you $3,379.24. That’s not quite half of that $7,600, but it’s getting there. It breaks down like this. The P&I, the Principal and Interest is $2,700.60. Your estimated taxes are $416.67. That’s only at 1.25% of your taxes.
Some of you might be higher than that. Some of you might be lower. Your estimated insurance is $110 and your estimated PMI was $151.97 but that’s because you’re only putting 3% down. There you go. You want to buy a $400,000 house based on the numbers. At the end of January of 2024, you have to be close to six figures, but don’t freak out. I’m going to get to the solutions, but the first thing you need to know is that this is not all of this equation.
This is an absolute estimate and does not include the dozens of other variables that you might be bringing to the table. It could be more, but it could be a lot less depending on things like your down payment, your credit score, your debt situation, your savings, your DTI, the debt-to-income ratio, and most importantly, the mortgage interest rate, which is the one variable that changes every single day.
The mortgage interest rate is the one variable that changes every single day.
Also, finally, the creativity of your unicorn lender to find other ways to get you approved for more with less. I mentioned the last time I did an episode on this back on April 4th, 2024. I said, “I’m doing my best to walk the line between making this easy and understandable, but also being ethical and forthright in explaining that these numbers change constantly.” There are a lot of people out there throwing these numbers out without explaining how it works and basically, lying to all of you and making you think, “That’s what the numbers said. That person’s a professional. That must be it.”
These numbers that I’m giving you right now are just like the closing date. Homies know what I’m talking about. These numbers are fluid and they are not one size fits all. They’re individual. There is no app where you can enter a few things and you get your accurate approved number. If you’re a glutton for punishment and you want to hear how all those options can change in a billion different ways, go back and listen to the episode from last April. It was episode 174. In that one, I break it down to a monotonizing just pull your hair out detail.
Some of you out there love that stuff, but I have to warn you, you’re going to want to gouge your ears out when you hear the numbers from April 2023 because all of that was calculated at a 5.99% mortgage interest rate. Hang with me because I know a bunch of you are massively depressed realizing that you need to make $7,600 a month, six figures a year practically.
This is where I offer you solutions on how to make your monthly income work to get you the approval that you need. First of all, this is an estimate from January 23rd, 2024. By the time you hear this, it’s going to be more than a month later and things will have changed. Now, will it be for the better or the worse? Who knows? That’s what we need to find out.
Low Inventory
Next and this is important. If you tune in to the 2024 Forecast and Prediction four-part series. If you tuned in to episodes 211, 212, 213, and 214, you know the one thing that will affect home prices moving forward? It’s low inventory. What that means is that if you can’t afford a $400,000 home now because you don’t make $7,600 a month, here comes your first painful truth bomb. Maybe you need to be looking at a $350,000 home so you can get your foot in the door but that’s where it’s at, gang.
Does this news suck for some of you out there? Yeah, it does, but I am not in the BS business. I’m in the education and empowerment business. Let me keep harshing your buzz with some more truth bombs in the education portion of education and empowerment. The solutions and empowerment, they’re coming. Hang tight. Here comes some more harsh reality.
You think it sucks that you need to make $7,600 a month in gross income to buy a $400,000 home at the rates at the end of January 2023 but let me ask you this. Do you make $6,000 a month and pay $3,000 a month in rent? I know a lot of people are spending 50% on their rent. What does that mean? This means we’re in a new era and the unicorns and I are empathetic to your plight. You can’t buy the way the Boomers did. I know that. I’m not here to sell you old BS.
You can’t get a good job right out of college and buy an affordable home when you’re 24 years old, but the reason why I’m doing this show and the reason why I’m trying to give you some solutions is I empathize with you because rents are so expensive. If you rent from 24 to 30 or 24 to 34 while you’re waiting around because you’re thinking homes are going to become more affordable, that’s 5 years, 6 years, 10 years of rent that’s going to keep going up and that rent goes to nothing. It’s a new era.
Instead of me trying to blow smoke up your behind, let’s talk about the fact that buying your first home is more of a rent replacement strategy than buying your dream home HGTV style. If you live in an area where you spend $2,500 a month on rent and you make $5,000 or $6,000 a month, maybe your best play is to look at $300,000 homes or townhomes or condos and develop that rent replacement strategy so you can get your foot in the door before the prices shoot up because they’re going to blow up in 2025. It’s all because of low inventory.
Buying your first home is more of a rent replacement strategy than buying your dream home HGTV style.
Yes, I am old. I am an OG Gen X-er here, but I am telling the realtors all over the country all the time. This new breed of buyer, you the reader don’t want your load of BS about buying a home is always a good idea, and you should buy as young as you can. By saying that out loud, it’s incredibly shortsighted and not understanding of your situation. This is not taking into account the freaking harsh numbers that I just threw at you. I get it. These numbers are out of whack right now.
Rent Replacement Strategies
According to the Bureau of Labor and Statistics, the average monthly salary in the US in 2024 is $6,288 or $74,738 a year. However, I just said the average US home is somewhere between $400,000 and $425,000, and the salary needed for that is at least $7,600 a month or almost six figures, $91,000 something a year. WTF? I know some of you were thinking, “That means this is out whack. The prices have to come down.”
I wish that were the case, but unfortunately, episodes 211, 212, 213, and 214, have low inventory. The supply and demand will simply push out the average US salary earner. That guy making the guy or gal or person or whoever making that average, $74,738 a year. That average person making $6,228 is going to get pushed out unless you can get creative and figure out a new way to do this. I’m giving you this information, but don’t shoot the messenger. I know that it’s self-explanatory, but it’s time for another edition of why we say that. Don’t shoot the messenger.
The sentiment that one should not kill the messenger was expressed by Shakespeare in Henry IV Part 2. That was back in 1598, and it was also expressed in Anthony and Cleopatra as well. Cleopatra threatened to treat the messenger’s eyes as balls when told that Anthony had married another. Eliciting the response, “Gracious Madam, I that do bring the news made not the match.” Some of you right now still can’t get over the fact that Cleopatra said that she threatened to use the messenger’s eyes as balls. Just like playing balls like she was going to throw them around.
First of all, get out of the gutter. How about that one? “Gracious Madam, I that do bring the news made not the match.” That means, “Don’t shoot the messenger. I’m just telling you the news, but I didn’t put Anthony in some other person to get married.” You guys out there can shoot me because I’m going to bring you some truth bomb news, and please don’t use my eyes as balls. I am here for you. The unicorns out there are here for you. We know that the game is rigged. We know that your generation is buying a home in a whole new way.
You’re going to need to use a rent replacement strategy so you feel comfortable with this. You’re going to need to work what you have and put a seemingly round peg into a square hole of affordability. I know this is not sexy to get rich quickly and it’s not HGTV exciting to sit down and create a rent replacement strategy to change your entire mindset to think I’m doing a rent replacement strategy.
I’m not buying a home because I’m finally a grownup, but I know that anyone who is paying high rent. Mathematically, this is going to be better than paying those high rents for the years to come. Myself and the unicorns, we hear you. We know it’s not the same as it used to be so let’s get on the solution side of this. Let’s talk strategy.
The almost six-figure estimate of $91,200 for a $400,000 home is using a low down payment. What if in your area you only need to buy a $300,000 condo or a townhome? What if you have a larger down payment? That can change your income required number a lot. Am I going to give you an exact number right here, right now? No. There are too many personal variables. What about other strategies? The first big thing is that in that April 2000 episode on how much salary you need to buy a home, the number was $69,600 a year to buy a $400,000 home with a 5% down payment. Why is it so drastically different? I’ll give you one guess. That was at a 5.99% interest rate.
You can’t get that now or can you? It’s solution time. If you can save up enough to buy a $400,000 home with 3% down, you could buy down the interest rate. It’s called a buy-down. You go to Google. It’s going to tell you that you can buy down the interest rate for 1% of the purchase price. That’ll buy it down 0.25%. In this case, $4,000 will take you from 7% to $6.75. It’s a 0.25% discount.
What Google doesn’t tell you is that there are several factors involved in how much the buy-down’s going to cost you like your credit score, the loan-to-value the type of loan, the actual original rate, not to mention a ton of different buy-down products. You can do one that buys it down more in the first year a little less than the second year and a little less than the third year. That’s called a 321 or you can do a 21.
You don’t need to know exactly how all of these work right now, but to give you an estimate, this is a high-end estimate. You could essentially buy down a 6.99% rate to a 5.99% rate for around $12,000. If 1% is $4,000, we need to do that four times. Let’s make that $16,000. If you do that four times, you could go from 6.99% to 5.99%, and then you’d only need to make that $69,000 a year. Now, this is all an approximation. When I threw out that $16,000 number to my lenders, they were like, “That’s way too much,” but of course they weren’t going to give me the exact numbers because I was recording this in the middle of the night and they’re at home in bed.
This is all an approximation, but you see why I don’t like anyone being freaked out by my truth bombs. It’s because there are solutions that mean you may be qualified for more than you think, and definitely, more than the two simple social media posts out there that will proclaim with a couple of quick little popups on social media what income you need to make to buy a $400,000 home?
One of the solutions we’ve got that is not a simple answer like the social media posts is you could pay that buy down. You’re probably going to pay less for that. That’s what my lender said. It’s maybe not the full $16,000. Maybe $12,000, maybe $10,000, or maybe $8,000. By the way, you could ask the seller to pay for that buydown or at least help out. I’ve had several listeners tell me that because they had a badass unicorn negotiating for them, they got $5,000, $10,000, or even $15,000 back from the seller in a credit.
If you need this credit to qualify or buy, keep in mind that you’ll be a less attractive offer in what is probably going to be a very competitive market. Please don’t you dare go balking at your unicorn when they tell you asking for credit could hurt your chances of getting your offer accepted. You’re not allowed to say, “Sidoni said that your unicorns can get us money from the seller.” No, I said that if you even want a chance at getting a credit or even a chance you’re going to need a unicorn and not a scrub, and then your unicorn will let you know if maybe that hurts your chances altogether and you can’t get it.
Keeping that in mind and thinking that we’re probably going to be in a competitive place for the next little while, let’s create another solution. You save up your 3% for the example we have now. Three percent down for a $400,000 house. You need $91,000 in annual salary. You save up the 3% down of $12,000. Then you save up 2% to 3% in your closing costs. It’s another $8,000 to $12,000.
Also, if you have the means, maybe you ask for a $10,000 or $15,000 gift from someone or if you can’t do that, maybe you save up another $10,000 or $15,000 or maybe you just save up another $5,000 on top of your down payment and your closing costs. With that extra money, you see what you can buy in your situation for a mortgage interest rate buy down because my super high $16,000 estimate to buy it down an entire one point, is just an estimate and it might be way high when you factor in all of your personal variables.
The last solution that I’m going to give you now, which is by no means the end of all the solutions, is the last one I’m going to record here because to find out all your solutions, you need to have a big old long conversation with a unicorn lender. The last solution I’m going to offer to you is a co-signer. You can get a co-signer on your loan and then in a few years when you’ve paid off some principal and the mortgage interest rates have gone down and maybe you’ve gotten a pay raise or two, then perhaps you’re going to be in a situation where you can qualify for the loan on your own at that time, and you can refinance into a new loan at a lower rate with just you on the loan.
Don’t get bummed out. A rent replacement strategy means that we understand that it’s not like the old days. I get it. I know that maybe for you asking for a co-signer might suck and it might make you eat some humble pie, but if swallowing your pride or having to save up a little extra for a buy-down means that you can purchase a home, it means that you can do this. What do you think I’m going to recommend? Swallowing your pride and saving up a little more. It’s a couple of the options for a rent replacement strategy.
I’m not stoked the game is rigged against you. I quit my broker five years ago and started this crazy mission because I thought that it sucks, and I still think that it sucks that you can’t buy a home the way generations before you could but I have math on my side. In this current world of inflation and high rents, the math says that your salary may mean you need to be working on a change of mindset. Accepting a rent replacement strategy.
I’m adulting now. I finally can’t wait to buy my home. Moving from that to believing Ted Lasso’s style in the math of the rent replacement strategy and finding a way to make that work. You’ll be happy when you do and when you are not paying rent for the next whatever years. There are plenty of other tips in the back episodes of the show to help you work on the big three, your credit score, working on your debt, managing that, and building up your savings.
Now, the more that you do things and do work on the big three, the more options you’re going to have in all of these solution-side strategies to help you potentially maybe not have to get that giant salary number. Let me once again, with all of my love and all of my empathy for what you are trying to do, be clear. If you want to do this right, do it smart. Get ready. Accept that maybe swallowing your pride and maybe doing this cheaper than you want to is the real answer instead of looking for a formula online that fits your dreams.
I have the formula in over 219 episodes, and you can’t blame me if you don’t like the real detailed answers. These are the real answers. This is the truth. I know it sucks, but my goal is to make it suck just a little less. I’m sitting here as the so-called guru, but people still keep asking me for formula so that they can get the magic words to make them get off their own ass.
There is no magic formula and there are no magic words because I’m going to give you the truth and the truth is hard to swallow in this current environment, but I know that so do the unicorns. Get yourself a unicorn support team. Find agents and lenders who understand how tough this is, and they’re going to understand that you and all your many variables and factors need to come together. They can give you some personal numbers and not just general information.
I love being in your ear holes and this is fun, but I can only do so much. If you want to be one of the success stories, doing an interview on the show, recording it from your own living room, or even better from the extra bedroom in your new home, then it’s time to get a team. Ask for one now before your pride gets overtaken by a worse emotion, regret. Go to HowToBuyAHome.com right now. Ask what you need to do next. Let’s get you pointed in the right direction. I don’t care who you buy a home with. Use a unicorn. Don’t use your unicorn, but use unicorn philosophies and get this done. It’s time to start. You can do this.
Important Links
- Episode 174 – past episode
- 211 – past episode
- 212 – past episode
- 213 – past episode
- 214 – past episode