At nearly three times the median U.S. household income, a family earning $200,000 a year or more should be on easy street when it comes to affording a home. But a sizable minority of this well-off group says a home purchase is still out of reach.
According to a recent Rent.com poll, more than a third of people making $200,000 or more a year aren't fully confident they'll ever be able to afford a house. Of renters in that income bracket, 22% said they were "not very confident" or had "no confidence at all" in their ability to afford a home, while another 13% were neutral on whether they'd be able to make the leap.
High-income renters remain far more optimistic than renters making less than $50,000 annually, over a third of whom believe they're "highly unlikely" to ever own a home. But it can feel startling that so many people bringing in high earnings feel like they're behind.
Not to Zumper data analyst Jeff Andrews, though. "High earners having a hard time finding a home isn't too surprising, simply because everyone is having a hard time finding a home," he says. "The market is so competitive, and more so among people who have the means to buy."
One key factor in these renters' struggles: Behind their big salaries, there are often big debts.
A significant driver "behind the inability to buy a home is the high amount of debt that those earners have accumulated to earn high-paying roles," says Michael Kelly, a charted financial analyst, certified financial planner, and president of Switchback Financial. "These are professions such as doctors, lawyers, or those that often require an MBA, and therefore, individuals stack up college loans so significant that they are not seeing the returns for years."
Take physicians, for example. Theirs is a high-paying job, with an average annual salary over $193,000, according to Glassdoor. Yet the average medical-school graduate is nearly $216,000 in debt, a figure that doesn't include college debt from their pre-med years.
Many of the Rent.com poll-takers pinged "homes costing too much" or "inability to afford a down payment" as the main barrier between them and a place of their own. That's a common complaint across all income brackets: U.S. home prices hit a median of $386,888 in June, Redfin reports, up 24% since the same time last year.
Yet that median home should still be affordable on a $200,000 income. Most experts say the upper limit for a home price should be three times your annual income (so $600,000, in this case).
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But many high earners live in big cities, not midsize ones. "High earners that rent tend to be concentrated in expensive markets, as they are often following technology and finance jobs that aggregate in major metros," says Autumn Lax, a certified financial planner at Drucker Wealth Management.
While $200,000 is a lot, if you're earning it somewhere like Honolulu or San Francisco, you can expect to pay between $750,000 and $1.5 million for the median home. A traditional 20% down payment on a $1.5 million house is $300,000, and that doesn't include closing fees, maintenance costs, or wiggle room in case you get into a bidding war.
"The challenge is that there are few homes to find at any price point, and the current financing arrangements banks are offering require 10% to 20% down, which can be difficult to accumulate when your cost of living, debt, and rent in that market are leaving little extra to save," Lax says.
It's clear the pandemic has worsened an already bad situation. Early last year, just a quarter of respondents said they had little or no confidence they'd become homeowners, Rent.com reports. Now, a third say they're not confident they'll ever be able to buy.
Experts continue to suggest that you don't take out a mortgage that's over three times your annual household income, or that has a monthly payment of more than 28% of your gross monthly income. High earners in pricey markets can have a bit of extra room on those numbers, experts say, but not as much as they'd probably like.
"Even for high-earning households, devoting more than 36% to 40% of monthly income toward debt payments severely restricts your financial flexibility," says Bankrate chief analyst Greg McBride. "There are worse things than renting for another year or two until your finances are on better footing."
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Try to pay down your loans before jumping into the housing market, McBride suggests: "Paying off debt, especially high-interest-rate debts and those with big monthly payments, or consolidating student loans, could create the necessary breathing room in the budget in order to qualify for a mortgage."
If you still can't find a mortgage that won't eat up more than a third of your monthly income, consider saving for a heftier down payment. "A bigger down payment could facilitate qualifying for the mortgage, since it won't need to be as big a loan," McBride says.
"What not to do is dial back, borrow from, or raid the retirement savings," he adds. "Don't make a bad situation worse."
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