Home buyers are taking on bigger mortgages as they compete in a fierce housing market and face higher home prices. The average home purchase loan amount reached $375,000 last week, according to the Mortgage Bankers Association. That represents the highest average home mortgage since the MBA began the survey in 1990.
Tight housing inventories across the country mixed with strong buyer demand are causing home prices to quickly appreciate. The National Association of REALTORS® reported that in October the median existing-home price for all housing types jumped 15.5% year-over-year to $313,000.
In general, financial analysts recommend that monthly housing costs should not exceed 30% of take-home pay. Those monthly housing costs should include more than just the mortgage payment too, but also property taxes, homeowners insurance costs, private mortgage insurance (if applicable), and homeowner association fees. For example, The Motley Fool says that if a household earns $3,000 a month after taxes that would then give them $900 to spend on their monthly mortgage payment and those additional housing expenses.
Recent record-low mortgage rates are helping somewhat with housing affordability. Some homeowners may be able to save hundreds of dollars per month by refinancing. Read more: Record Number of Homeowners Stand to Lower Mortgage Payments