How Much Income Do You Need to Buy a Typical Home in Northwest Rochester, Minnesota

Dave Meir
Published on November 16, 2015

How Much Income Do You Need to Buy a Typical Home in Northwest Rochester, Minnesota

HowMuchIncomeRequired

In a previous article here on this website we looked at; What the Typical Home Looks Like in 11 of the Most Popular Neighborhoods of Northwest Rochester, Minnesota. That article details the typical homes themselves; how many bedrooms and bathrooms they have, how big their garages and their lots are and what those homes typically sell for.

In this article we’ll look at income requirements. Whether you’re in search of your first home or your fifth many people struggle figuring out how much they can – or can’t – afford. You might be surprised.

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Major, Huge, Significant Disclaimer

I am NOT a mortgage loan officer or a lender. I have NO experience in either field. The information you’ll find in this article you can find pretty much anywhere on the web – my goal is just to help you understand it a bit better.

If you read below you need to make $53,417 a year to afford the typical home in a particular neighborhood and you make $53,417 a year, it’s not a guarantee you’ll qualify for a mortgage on that typical home. Mortgage loan underwriters are also going to consider your credit rating and your other long term and short term debt.

You can however, use the numbers as a guide. Possibly saying to yourself, “Wow, I like that house and that neighborhood and according to this article we might qualify for a mortgage. Let’s check into this further.” Good call.

(If you’d like to do some of your own number-crunching I used this on-line mortgage calculator to calculate the mortgage payments used in this article.)

Mortgage Payment Basics

In the Neighborhoods and the Numbers section below you’ll find information about the principle and interest payments, property taxes, insurance, etc. . . Here I’ve provided a brief explanation of the terminology;

Principle and Interest:

Just like any loan, whether it’s for a car or a boat or a home, each month part of your payment will be applied to the principle (the outstanding loan balance) and part will go towards the interest you’re paying to have that outstanding balance. (Who am I kidding, most of it will go to the interest – at least in the first few years.)

Your principle and interest payment is calculated via an equation that considers your mortgage interest rate and your total mortgage amount. In the following examples I have used a mortgage interest rate of four percent (4%).

Property Taxes:

As long as you own a house you will have property taxes. I don’t know of many lenders that allow you to pay your property taxes on your own – they’re calculated monthly and added to your mortgage payment. In the following examples the property tax estimate used is based on 1.3% of the sale price of the home.

When you look at homes for sale on your computer it will most likely list the actual real estate taxes for that particular property. The 1.3% figure used in these examples is an estimate only and it’s based on the sale price of the home.

You should also know that the assessed value of your home may be less or more, than the price you’ve paid for your home. Your property taxes are calculated using the assessed value. If you’d like to calculate your property taxes yourself you can use this nifty little tool provided by Olmsted County.

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Homeowners Insurance:

This is another item your mortgage lender will not allow you to pay on your own. They want to make sure their collateral is covered by insurance in the event of a catastrophe.

It’s pretty tough to get a homeowners insurance estimate without actually contacting an agent. Go figure. I read various articles around the web and most indicated that $3.50 per year per $1,000 of home value was pretty typical.

The on-line mortgage calculator used for this article seemed to follow that estimate. Obviously when you get close to finding “the one” you’ll want to contact your agent for a more accurate estimate of your homeowners insurance.

Private Mortgage Insurance (PMI):

Many people are unaware they can still buy a home with less than a 20% downpayment. If you qualify for a conventional mortgage and you have less than 20% for a downpayment you will most likely be required to pay Private Mortgage Insurance or PMI.

Your PMI premium will be based in part on your credit rating and in part on how much your downpayment is. The numbers illustrated here are approximations. You should consult your loan officer about your actual estimated PMI premium.

Also keep in mind that with, as example, an FHA loan, you may be able to get into a new home with as little as 3.5% down. There are requirements of course but it’s definitely worth checking into.

Another thing to consider is the potential for downpayment assistance. In a recent continuing education class I heard that 92% of the homes for sale in Minnesota would qualify for some type of downpayment assistance program. Ask a lender for details on this.

What is PITI?

You may have heard the term; PITI? It stands for Principle, Interest, Taxes and Insurance. While it is not your actual mortgage payment – that would just be the principle and interest – PITI is used to determine how much of a house payment you can afford each month.

Underwriting Guidelines for Mortgage Payment Affordability

Mortgage loan underwriters – among many other things – will consider your short and long term debt when determining whether or not you qualify for the mortgage you are seeking. It’s my understanding they typically consider as long term debt, anything that will take you longer than 12 months to pay off.

Again it is my understanding the underwriting rule of thumb guideline is 36%. Your mortgage payment (PITI) and your other long-term debt should not total any more than 36% of your gross monthly income. Remember this is a ballpark rule of thumb. Only your lender will be able to tell you for sure.

If you have a car payment of $500/month and it still has three years before it’s paid off – that’s long term debt. If you have a credit card balance of $1,500 and you pay $75/month it’s going to take longer than 12 months to pay it off; long term debt.

The other underwriting rule of thumb is 28%. Your total house payment (PITI) should not total more than 28% of your gross monthly income. If you make $50,000/year that’s $4,166/month in gross income. Twenty-eight percent (28%) of $4,166 is $1,166. That means, according to this rule of thumb guideline, you can afford a house payment (PITI) of $1,166 per month.

Again, repeat after me, “Only my loan officer will be able to tell me for sure the mortgage payment I’ll qualify for.”

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Not to Beat a Dead Horse but . . .

If you think I’m passing the buck by adding in the above disclaimers you are 100% correct. I’m a Realtor, I’m not a mortgage lender or mortgage underwriter. Realtors can, quite honestly, get their butts in a sling giving mortgage advice. I can tell you, “Your payment on this house would probably be about “X” dollars a month. I can’t tell you, “Your payment on this home is going to be $896.00 month.” “. . . probably be about . . .” and “. . . is going to be . . .” the operative phrases in the above sentences.

Use the information herein as a guide to figuring out whether or not you might be able to buy a house. If your income seems within range of the numbers you’ll find below, your first step should be to find a mortgage loan officer and go through the process of pre-qualifying. Then you’ll know for sure and you’ll have an answer from someone who can actually make the decision to give you a mortgage.

That said, even if your income doesn’t fall within the approximate ranges illustrated below you may still qualify for a mortgage. Don’t discount your potential for buying a home based on the advice of your stylist, your co-workers, your parents or me.

Only a mortgage loan officer – who can actually run the numbers – can tell you for sure. If you’ve wanted to buy a house and you haven’t because you “think” you won’t qualify, you owe it to yourself to talk to someone who can tell you for sure.

The Neighborhoods and the Numbers

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Below you’ll find illustrated monthly payment and annual income estimates for the typical home in 11 of the most popular neighborhoods of northwest Rochester – using both 10% and 20% downpayment(s). If you’d like to do some of your own number crunching I used this on-line mortgage calculator to calculate the mortgage payments you’ll find below.

Manorwoods Area

$198,000 – Average Home Price
$39,600   – 20% Downpayment
$756        – Principle and Interest per month
$214        – Property Taxes per month
$58          – Homeowners Insurance per month
$1,028     – Total Monthly Payment (PITI)
$44,057   – Annual Income Needed

$198,000 – Average Home Price
$19,800   – 10% Downpayment
$851        – Principle and Interest per month
$214        – Property Taxes per month
$58          – Homeowners Insurance per month
$93          – Private Mortgage Insurance per month
$1,216     – Total Monthly Payment (PITI)
$52,114   – Annual Income Needed

Learn more about the Manorwoods area and see homes for sale in the Manorwoods area HERE.

Country Club Manor Area

$143,900 – Average Home Price
$28,780   – 20% Downpayment
$550        – Principle and Interest per month
$156        – Property Taxes per month
$40          – Homeowners Insurance per month
$746        – Total Monthly Payment (PITI)
$31,971   – Annual Income Needed

$143,900 – Average Home Price
$14,390   – 10% Downpayment
$618        – Principle and Interest per month
$156        – Property Taxes per month
$40          – Homeowners Insurance per month
$67          – Private Mortgage Insurance per month
$881        – Total Monthly Payment (PITI)
$37,757   – Annual Income Needed

Learn more about the Country Club Manor area and see homes for sale in the Country Club Manor area HERE.

Diamond Ridge Area

$173,500 – Average Home Price
$34,700   – 20% Downpayment
$663        – Principle and Interest per month
$188        – Property Taxes per month
$49          – Homeowners Insurance per month
$900        – Total Monthly Payment (PITI)
$38,571   – Annual Income Needed

$173,500 – Average Home Price
$17,350   – 10% Downpayment
$745        – Principle and Interest per month
$188        – Property Taxes per month
$49          – Homeowners Insurance per month
$81          – Private Mortgage Insurance per month
$1,063     – Total Monthly Payment (PITI)
$45,557   – Annual Income Needed

Learn more about the Diamond Ridge area and see homes for sale in the Diamond Ridge area HERE.

Badger Hills Area

$238,800 – Average Home Price
$47,760   – 20% Downpayment
$912        – Principle and Interest per month
$259        – Property Taxes per month
$67          – Homeowners Insurance per month
$1,238     – Total Monthly Payment (PITI)
$53,057   – Annual Income Needed

$238,800 – Average Home Price
$23,880   – 110% Downpayment
$1,026     – Principle and Interest per month
$259        – Property Taxes per month
$67          – Homeowners Insurance per month
$112        – Private Mortgage Insurance per month
$1,464     – Total Monthly Payment (PITI)
$62,743   – Annual Income Needed

Learn more about the Diamond Ridge area and see homes for sale in the Diamond Ridge area HERE.

Wedgewood Hills and Kingsbury Hills Area

$207,400 – Average Home Price
$41,480   – 20% Downpayment
$792        – Principle and Interest per month
$225        – Property Taxes per month
$58          – Homeowners Insurance per month
$1,075     – Total Monthly Payment (PITI)
$46,071   – Annual Income Needed

$207,400 – Average Home Price
$20,740   – 10% Downpayment
$891        – Principle and Interest per month
$225        – Property Taxes per month
$58          – Homeowners Insurance per month
$97          – Private Mortgage Insurance per month
$1,271     – Total Monthly Payment (PITI)
$54,471   – Annual Income Needed

Learn more about the Wedgewood Hills and Kingsbury Hills area and see homes for sale in the Wedgewood Hills and Kingsbury Hills area HERE.

Lincolnshire Area

$221,300 – Average Home Price
$44,260   – 20% Downpayment
$845        – Principle and Interest per month
$240        – Property Taxes per month
$62          – Homeowners Insurance per month
$1,147     – Total Monthly Payment (PITI)
$49,157   – Annual Income Needed

$221,300 – Average Home Price
$22,130   – 10% Downpayment
$951        – Principle and Interest per month
$240        – Property Taxes per month
$62          – Homeowners Insurance per month
$104        – Private Mortgage Insurance per month
$1,357     – Total Monthly Payment (PITI)
$58,157   – Annual Income Needed

Learn more about the Lincolnshire area and see homes for sale in the Lincolnshire area HERE.

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Sunset Terrace Area

$129,600 – Average Home Price
$25,920   – 20% Downpayment
$495        – Principle and Interest per month
$140        – Property Taxes per month
$36          – Homeowners Insurance per month
$671        – Total Monthly Payment (PITI)
$28,757   – Annual Income Needed

$129,600 – Average Home Price
$22,130   – 10% Downpayment
$557        – Principle and Interest per month
$140        – Property Taxes per month
$36          – Homeowners Insurance per month
$61          – Private Mortgage Insurance per month
$794        – Total Monthly Payment (PITI)
$34,028   – Annual Income Needed

Learn more about the Sunset Terrace area and see homes for sale in the Sunset Terrace area HERE.

Northgate Area

$146,900 – Average Home Price
$29,380   – 20% Downpayment
$561        – Principle and Interest per month
$159        – Property Taxes per month
$41          – Homeowners Insurance per month
$761        – Total Monthly Payment (PITI)
$32,614   – Annual Income Needed

$146,900 – Average Home Price
$14,690   – 10% Downpayment
$631        – Principle and Interest per month
$159        – Property Taxes per month
$41          – Homeowners Insurance per month
$69          – Private Mortgage Insurance per month
$900        – Total Monthly Payment (PITI)
$38,571   – Annual Income Needed

Learn more about the Northgate area and see homes for sale in the Northgate area HERE.

Golfview Estates Area

$292,300 – Average Home Price
$58,460   – 20% Downpayment
$1,116     – Principle and Interest per month
$317        – Property Taxes per month
$82          – Homeowners Insurance per month
$1,515     – Total Monthly Payment (PITI)
$64,928   – Annual Income Needed

$292,300 – Average Home Price
$29,230   – 10% Downpayment
$1,256     – Principle and Interest per month
$317        – Property Taxes per month
$82          – Homeowners Insurance per month
$137        – Private Mortgage Insurance per month
$1,792     – Total Monthly Payment (PITI)
$76,800   – Annual Income Needed

Learn more about the Golfview Estates area and see homes for sale in the Golfview Estates area HERE.

Ridgeview Manor Area

$246,300 – Average Home Price
$49,260   – 20% Downpayment
$941        – Principle and Interest per month
$267        – Property Taxes per month
$69          – Homeowners Insurance per month
$1,277     – Total Monthly Payment (PITI)
$54,728   – Annual Income Needed

$246,300 – Average Home Price
$24,630   – 10% Downpayment
$1,058     – Principle and Interest per month
$267        – Property Taxes per month
$69          – Homeowners Insurance per month
$115.00   – Private Mortgage Insurance per month
$1,509     – Total Monthly Payment (PITI)
$64,671   – Annual Income Needed

Learn more about the Ridgeview Manor area and see homes for sale in the Ridgeview Manor area HERE.

North Park Area

$217,300 – Average Home Price
$43,460   – 20% Downpayment
$830        – Principle and Interest per month
$235        – Property Taxes per month
$61          – Homeowners Insurance per month
$1,126     – Total Monthly Payment (PITI)
$48,257   – Annual Income Needed

$217,300 – Average Home Price
$21,730   – 10% Downpayment
$934        – Principle and Interest per month
$235        – Property Taxes per month
$61          – Homeowners Insurance per month
$102        – Private Mortgage Insurance per month
$1,332     – Total Monthly Payment (PITI)
$57,085   – Annual Income Needed

Learn more about the North Park area and see homes for sale in the North Park area HERE.

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