How Much House Can I Afford to Buy in Washington State?

October 21, 2016
Last updated:
March 16, 2022
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Home prices in Washington State have increased significantly over the past few years. According to reports, Washington State had huge increases in home prices from 2012 through to mid-2018. In some years over that time period, home values rose by over 10% a 12-month span, putting Washington ahead of all nearly other states.

And despite slowed price growth from mid-2018 to mid-2019, home prices have been soaring since. Right now, Washington State is considered a very hot market with the average price sitting at $593,897. Prices have increased 24.1% over the past year and are expected to climb at roughly the same pace over the next 12 months.

As a result of this trend, home buyers today are very much concerned with affordability. In particular, they want to know: How much house can I afford to buy in Washington State? Here’s how to find this answer to this important question.

How Much House Can I Afford in Washington State?

When buyers ask how much they can afford to buy, they’re often asking two questions at once. And they are:

  1. How much of a monthly mortgage payment can I comfortably afford?
  2. How much of a home loan can I qualify for, based on my income?

These are two slightly different questions, and we will address them both in detail.

At a glance: Financial experts recommend keeping your combined housing costs at or below 33% of your monthly income. Some set the bar even lower. Mortgage lenders (and even some government housing agencies) prefer borrowers to have a total debt-to-income ratio (DTI) no higher than 43%. Your DTI plays a key role in your ability to not only secure a mortgage, but get approved at a lower interest rate, which can save you a ton of money over the life of your loan.

But these are just general “rules” that might not apply to your particular situation. You’ll want to create a specific home-buying budget for yourself. Here’s how to do it.

Creating Your Home Buying Budget

The important question is, how much house can you buy in Washington State without sacrificing your quality of life? You’ll want to determine this number before you even start house hunting. Fortunately, the math is pretty simple.

To begin, compare your net monthly income, or “take-home pay,” to your non-housing monthly expenses. (You only want to include your non-housing expenses at this point, because you’re trying to determine how much you’ll have left over for your housing payments going forward.)

Non-housing expenses include things like…

  • Car payment, auto insurance, and gas
  • Credit card bills
  • Groceries, dining and entertainment
  • Savings account contributions, IRA, etc.

Next, subtract these recurring monthly expenses from your take-home pay. The remainder is what you have available to put toward a monthly mortgage payment. Of course, you probably don’t want to use the entire remainder for housing costs. But this does give you a starting point for your monthly home-buying budget.

It’s also wise to keep some emergency funds in the bank for unplanned expenses, income loss, or other financial hardships. Financial experts recommend keeping three to six months of living expenses in the bank, for this very reason. So be sure to factor this in when determining how much house you can afford to buy.

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Closing Costs and Down Payments

When buying a home in Washington State, you also have to consider your down payment and closing costs. These are up-front expenses that can affect your buying power.

Your down payment might fall between 3% and 20% of the purchase price, depending on the type of home loan you use and other factors. Military members can often qualify for 100% financing, through the VA loan program. Closing costs in Washington State tend to average between 1% to 3% of the purchase price, though they can be higher than this in some cases.

The point is, there are both up-front and long-term costs to consider when buying a home in Washington State. You must look at both of these factors to determine how much house you can afford.

Mortgage Considerations: Debt-to-Income Ratio

Your debt-to-income ratio will also affect how much of a home you can buy. Mortgage lenders use this ratio to ensure you’re not taking on too much debt, with the addition of the home loan.

The debt-to-income ratio, or DTI, compares a borrower’s debts and income. Example: A person who grosses $4,000 per month, and spends $1,500 on total monthly debts, would have a DTI ratio of 37.5% (because 1500 / 4000 = .375, or 37.5%).

These days, most mortgage lenders prefer borrowers to have a total or “back-end” DTI no higher than 43%. But exceptions are often made for well-qualified borrowers with strong credit histories, significant cash reserves in the bank, etc.

The point is, if your back-end DTI ratio is a lot higher than 43%, you might have a harder time qualifying for a mortgage loan.

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Have Questions About Mortgages in Washington?

If you are curious about mortgages or are ready to apply for one, get in touch with the professionals at Sammamish Mortgage. We are a local, family-owned company based in Bellevue, Washington and provide mortgage programs to clients all over the entire state, as well as Oregon, Idaho, and Colorado since 1992. Please contact us with any of your questions!

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