Income Needed for Bay Area Mortgage Payments: A 2022 Update

A new report published this week estimated how much income Bay Area home buyers would need to cover their monthly mortgage payments. Researchers calculated the “minimum qualifying income” by using current mortgage rates and home prices, and assuming a 20% down payment.

The necessary monthly income ranged from $140,800 on the low end to $512,000 on the high end (depending on the county). The minimum qualifying income for the Bay Area region as a whole was estimated at $337,200, based on median pricing data.

Monthly Income Needed for a Mortgage in the Bay Area

On August 11, the California Association of REALTORS® (C.A.R.) published a housing market report that focused on affordability levels statewide. Among other things, it estimated the minimum income home buyers would need to cover their monthly mortgage payments.

According to their report: “A minimum annual income of $199,200 was needed to make monthly payments of $4,980, including principal, interest and taxes on a 30-year fixed-rate mortgage at a 5.39 percent interest rate.”

The $199,200 income figure mentioned above applies to the state as a whole. It can be higher than that in more expensive real estate markets, and lower in the more affordable markets.

As you might have guessed, the income needed to cover the monthly mortgage payments in the Bay Area is higher than the statewide average shown above. After all, we live in one of the most expensive real estate markets in the country.

The income needed to cover monthly mortgage payments in the nine-county Bay Area region was $337,200, with a monthly payment of around $8,430. Home buyers in Solano County can get by with far less, since home prices are lower there. In San Mateo County, the most expensive in the Bay Area, home buyers would need somewhere around $512,000 to make the monthly payments on a mortgage loan.

* C.A.R. calculated the monthly payments using a 30-year fixed-rate mortgage at 5.39% (the average rate, as of August 2022). They also factored for a down payment of 20%. Borrowers who put down more than 20% would end up with a smaller monthly payment, and vice versa.

A 20% Down Payment Not Always Necessary

This analysis used a 20% down payment because that’s a common investment amount among Bay Area home buyers. Many borrowers who use a conventional home loan to buy a house put down 20% or more, so they can avoid mortgage insurance.

Private mortgage insurance (PMI) is usually required when the loan-to-value ratio rises above 80%. So by making a down payment of at least 20%, Bay Area buyers can avoid PMI entirely.

But a 20% investment isn’t always necessary. In fact, some borrowers who use conventional (non-government-backed) mortgages put down as little as 3%. Others might make a down payment of 5% or 10%. It varies.

The point is, home buyers shouldn’t be discouraged by all this talk of a 20% down payment. The authors of this report used that figure for their calculations. But not all buyers have to put down 20%. Some buyers make down payments in the single-digit percentage range. You have options!

Solano County: Still the Most Affordable in 2022

As usual, Solano County remains the most affordable housing market within the broader Bay Area region. According to the C.A.R. report: “Twenty-eight percent of Solano County households could afford the $625,000 median-priced home, making it the most affordable Bay Area county.”

The median price point in Solano is quite a bit lower than the regional average. This makes it a popular market for home buyers who cannot afford to put down $1-million-plus on a home purchase.

When factoring for a 20% down payment, the minimum qualifying income in Solano County came to around $140,800. The estimated monthly payment for a median priced house (including taxes and insurance) would be approximately $3,520. That’s less than half of the average monthly payment for the Bay Area as a whole.