Borrowers can improve their credit scores, extend the length of their loan, or eliminate private mortgage insurance to make mortgage payments more manageable. An upcoming interest rate cut might help make homeownership more attainable, although immediate savings for current homeowners may take time. With Americans owing $12.14 trillion in mortgage debt, homeownership costs have risen significantly, with typical monthly payments increasing from $1,000 to over $2,000 in recent years.
Calculating how much you can afford for a mortgage involves understanding your income and expenses. The 28% rule suggests spending no more than 28% of your gross income on your mortgage, while the 35/45 model recommends keeping total debt within 35% of pretax income or 45% of after-tax income. A stricter 25% post-tax rule can also be used for budgeting. Tools from sites like NerdWallet and lenders can help with these calculations.
Homeownership is less affordable now than in the past 17 years, with typical costs consuming a large portion of average wages. A potential Federal Reserve interest rate cut might improve affordability, but the housing market’s challenges and high costs may still pose obstacles for many buyers.
