Financing a home is complicated. There are numerous parts of the equation — credit scores, loan terms, interest rates, types of loans, down payments and so on.
Still, there’s a line where one lacks the income to afford Clark County’s median house sale price, $525,000.
And that line is just below the area’s median household income.
With a 20 percent down payment, a buyer needs to earn more than $73,000 per year to take out a loan that size. If supplying a 3.5 percent down payment — the standard for a government-backed Federal Housing Administration loan — the income minimum goes up to $86,000 per year.
With 3 percent down, it’s over $91,000 per year; with 5 percent down, it’s more than $89,000 per year.
The median household income in 2020 in Clark County was $77,184, according to the U.S. Census bureau.
“It’s really hard to find a home that’s first-time-homebuyer friendly,” said Jodi White, designated broker at Belay Mortgage in Vancouver and the broker who calculated the above numbers.
There are different types of mortgages — conventional loans, jumbo loans, government-insured loans, fixed-rate mortgages and adjustable-rate mortgages. White’s calculation is for a fixed-rate, 30-year mortgage.
Conventional mortgages allow for as little as a 3 percent down payment. If a homebuyer puts down less than 20 percent, though, they will have to pay for mortgage insurance, increasing their monthly payment.
For a $525,000 home, a 3 percent down payment would be $15,750, while a 20 percent down payment is $105,000. A government-backed Federal Housing Administration loan requires a 3.5 percent down payment, which would be $18,375 for a $525,000 house.
Mortgage insurance is built into a buyer’s monthly payment of principal and interest, as are property taxes and hazard insurance.
Loan-repayment costs are impacted by the loan terms. They’re lower if the mortgage’s term, or length of mortgage, is longer. So, a buyer would pay more each month for a 15-year mortgage as opposed to a 30-year mortgage.
Interest rates, which change often, play into the loan repayment as well. Higher rates mean a buyer’s monthly payment will be higher. Rates last week were better than they had been recently. White’s calculation assumed an interest-rate range of 4.625 percent to 4.875 percent for conventional, 30-year, fixed-rate loans and 4 percent to 4.125 percent for FHA 30-year, fixed-rate loans.
There are other things that play into a buyer’s financing as well, including their credit score. White assumed a credit score of 740 and no other debt with the non-government-backed loan options. The FHA loan does allow for a higher total debt-to-income ratio than conventional loans.
For those putting 3.5 percent down with an FHA loan on that $525,000 median-priced house, White calculated a monthly payment of upward of $3,300. For 3 percent down, it’s upward of $3,400; for 5 percent down, it’s upward of $3,300; and for 20 percent down, it’s upward of $2,700.