Brought to you by Scott P. Rogers, Funkhouser Real Estate Group, 540-578-0102, scott@HarrisonburgHousingToday.com
Brought to you by Scott P. Rogers, Funkhouser Real Estate Group, 540-578-0102, scott@HarrisonburgHousingToday.com
Monday, February 6, 2023
Q: What Is An Affordable Home Purchase For A First Year Teacher?
A: Technically, $161K, but maybe more?
Let's look at the numbers...
It seems a first year teacher in the City of Harrisonburg would expect to be paid around $50,000 annually per this salary scale.
A commonly accepted guideline for housing affordability is a housing cost, including utilities, that does not exceed 30% of a household's gross income.
If we estimate utilities at around $125 per month, to include $40 for water/sewer and $85 for electricity, we would then conclude that this first year teacher could spend up to $1,125 per month on their mortgage payment.
$50,000 x 30% = $15,000 for mortgage + utilities (per year)
$15,000 / 12 = $1,250 for mortgage + utilities (per month)
$1,250 - $125 utilities = $1,125 for mortgage
How, then, does that translate into a potential purchase price of a home for this first year teacher?
We'll assume a small-ish (5%) down payment for this first year teacher, and thus 95% financing, and a slightly above market rate of 6.5% for a 30 year fixed rage mortgage.
To determine a housing budget for this first year teacher, let's look at a few mortgage payments (including principal, interest, taxes and insurance) given 95% financing at 6.5% and City taxes...
$250K purchase = $1,748 / month
$225K purchase = $1,572 / month
$200K purchase = $1,398 / month
$175K purchase = $1,223 / month
$161K purchase = $1,126 / month
$150K purchase = $1,048 / month
So, a few things to note here...
[1] An affordable home purchase for a first year teacher given the assumptions above would be priced right around $161K.
[2] Let's tweak the numbers a bit. We'll look at a teacher's salary after three years ($52K) and we'll round utilities down a bit ($100 instead of $125) and we'll hope for a loan program with a slightly lower (6.25% instead of 6.5%) interest rate. This increases the monthly budget to $1,200 which translates into a $176K home purchase instead of $161K. So... a bit better, but not much.
[3] This theoretical buyer could likely actually qualify for a higher mortgage payment (and thus a higher purchase price) than is outlined above, though the housing would not then be considered affordable given that more than 30% of their gross income would be going towards housing costs to include utilities. If they qualified for a $225K home purchase, they'd be spending $1,572 per month on their mortgage payment, plus about $125 on utilities, which would be a total of 41% of their income instead of 30%.[4] Circling back to the original $1,125 per month figure... there are rental options at this price point even if it proves difficult to find a suitable home to purchase for $161K with that same $1,125 per month budget.
[5] Certainly, if the first year teacher is married or is in a relationship such that there are two buyers instead of one, with two incomes instead of one, then all of this math changes... and they will find more housing options that will fit the affordable criteria.
P.S. Do you come up with different numbers when you do that math? What assumptions above are too high or too low? What else am I not considering in this analysis? Let me know.
