Reason You Can’t Afford to Buy a House


With interest rates at an all-time low, now’s a good time to become a homeowner or move up. There are plenty of reasons to own a piece of your American dream. Homeowners, on average, have a greater net worth than renters, plus owning can provide a sense of accomplishment. But once you begin the process of buying and speak with mortgage lenders, you might come to the realization that you can’t afford to buy a house—at least not now.

  1. You haven’t saved enough money

If you’re not up-to-date with current mortgage requirements, you might be unaware that most lenders currently require a down payment for a home purchase. This wasn’t the case in the mid- to late-2000s before the housing crisis. Ten years ago you could walk into a lender’s office with zero cash and purchase with nothing out-of-pocket. Nowadays, unless you qualify for a VA home loan or a USDA home loan, you’ll need a minimum down payment between 3.5% and 5%. Regardless of whether you have an excellent credit score and sufficient income, most mortgage lenders won’t approve your application if you don’t have enough assets.

  1. You have too much student debt

Another roadblock to homeownership for some borrowers is student loan debt—or any type of debt. When you apply for a home loan, the lender will look at your credit report to see how much you owe other creditors, and they’ll factor in your minimum payments for car loans, credit cards, student loans and other debts when determining whether you qualify for a mortgage.

Unfortunately, if your student loan payments take a chunk of your monthly income, this can delay a home purchase in two ways. This is because student loan payments prevent some would-be buyers from building a savings account to cover their down payment and closing costs. And secondly, student loan debt can increase a buyer’s debt-to-income ratio, making it difficult for them to qualify for a home loan. Or they might only qualify for a small amount and it becomes harder to find properties in their price range.

  1. You’re a one-income household

You can certainly buy a home as a single person. But when you’re a single-income household managing bills on your own, it is harder to qualify for large mortgages. You might run into this problem if you live in an area with a higher cost-of-living.

Let’s say you make $35,000 a year, or roughly $2,900 a month before taxes. Typically, monthly mortgage payments cannot exceed 28% to 30% of your gross monthly income. Therefore, the maximum you can spend on a mortgage payment every month, including principal, interest, taxes and homeowners insurance, would be around $870. This means you can afford to spend a maximum of $120,000 to $140,000 on a home purchase, depending on your mortgage rate and term.

This isn’t an issue if there’s affordable housing in your area and a generous selection of properties within this price point. On the other hand, if it’s expensive to live in your city and starter homes begin in the low $200,000, you’ll have to postpone buying a home until your income increases.