How much house can you buy with your education level?


Does more education mean more homes?

Most of us intuitively know that the more education you have (at least the right kind education), the better your job opportunities and the higher your average income. So how does that translate to home affordability? How much house can you buy for your level of education?

See Mortgage Rates for Homes in All Price Ranges (02/14/2022)

Average income by level of education

According to the U.S. Bureau of Labor Statistics (BLS), your income and job stability increase significantly with your level of education. Here are the median annual earnings for people with various degrees in 2017, the most recent year given:

  • High School: $37,024
  • Any college, no degree: $40,248
  • Associate’s degree: $43,472
  • Bachelor’s degree: $60,996
  • Master’s degree: $72,852
  • PhD: $90,636
  • Professional degree: $95,472

How much house can you buy with your education?

Given the average amount for a first-time homebuyer (7 percent according to the National Association of Realtors), don’t have a lot of debt, and finance at 4.7 percent, that income should get you a home at these approximate values:

  • High School: $161,231
  • Any college, no degree: $175,843
  • Associate’s degree: $199,449
  • Bachelor’s degree: $283,354
  • Master’s degree: $339,978
  • PhD: $424,913
  • Professional degree: $447,866

These prices are estimates and will vary based on your credit rating (mortgage insurance depends in part on your credit rating), the state you are buying in (property taxes vary widely), and the mortgage you choose.

Related: 6 Lowest No Down Payment Mortgage Loans for 2019

income stability

Another point mortgage lenders look at is your income stability. That means your likelihood of keeping the job you have or finding new employment when you need it. And this factor also depends somewhat on your level of education. The chart below illustrates unemployment rates by education level (data are also from 2017).

  • Abitur: 4.6 percent
  • Some college, no degree: 4.0 percent
  • Associate’s degree: 3.4 percent
  • Undergraduate: 2.5 percent
  • Master’s degree: 2.2 percent
  • Promotion: 1.5 percent
  • Vocational qualification: 1.5 percent

Mortgage Approval by Education Level

The US government doesn’t specifically track how much house you can buy based on your education level. A widely cited study (Education Levels and Mortgage Application Outcomes: Evidence of Financial Literacy) did tracked mortgage completion rates by census district and found that there was a correlation between mortgage completions and the percentage of college graduates in the region.

Applicants in neighborhoods with 5 percent or fewer college graduate residents completed their mortgages 54.3 percent of the time, while applicants in areas with 15 percent or more college graduates completed 65.7 percent of the time. And applications in less educated areas were rejected at a rate of 20.7 percent, compared to the 12.7 percent rejection rate of college tracts.

While that doesn’t mean that going to college will automatically get you mortgage approval, the things that come with it – higher income and better neighborhoods – do.

You don’t need a college degree to buy a home

That said, these are stats that apply to large groups of people — but not necessarily to you. (Most of us know at least one person with two college degrees who still works at Starbucks.) Many, many business owners and employees enjoy excellent income and the opportunity to acquire the security, home and lifestyle they desire .

And while education definitely affects home ownership, the chart below, using information from Brookings researchers, shows that debt plays a big part.

However, there are things anyone of any educational level can do to increase their chances of being successful in home ownership.

The B word

Studies have shown that accountability is an important success factor. People who track every bite are twice as successful at losing weight. Because when they write down what they eat, they think about it, and when they think about it, they consider whether or not they are hungry and whether something healthier would be a better choice.

The issues are the same way. Budget consumers are more engaged and save more effectively. So spend a month tracking every single thing you pay for. Chances are you’re just looking to spend less. Don’t want to track every cent? Then create a budget using one of the many effective online tools available.

Pay yourself an allowance and use it for all voluntary expenses. Pulling cash out of your wallet to pay has been shown to cause more mental pain than pulling out the plastic or clicking buy. So take the pain now and enjoy a better future.

live less big

Whether you can afford $500 a month or $50,000 in rent, spend less. Find somewhere cheaper. Get a roommate. Set the thermostat lower in winter and higher in summer. Learn to cook and eat fresh foods instead of paying or going out for processed foods. You also save on medical expenses. Ditch your gym membership and run in the park with friends. In fact, this whole exercise becomes easier when you can enlist the help of friends who share the same goal – financial security and home buying.

Change your habits for a month and see how much you save. Put that in the bank or pay off debt and make that your goal every month. You not only increase your savings; You’ll also practice home ownership – learn to live with less.

Increase savings

One of the byproducts of living on less is that you can save more. Don’t even think about saving for a home until you have enough savings to cover at least two months’ expenses (six if you’re self-employed or on a commission basis).

Start your savings habit with a flea market or spend the day with an app like Letgo or edit your eBay account. Get rid of everything you don’t need right now and save it. The same goes for good fortune like tax refunds or gifts. Treat yourself a little, but save most of it.

See also: Complete Guide to US Down Payment Help

Double

The income and home purchase figures above are per person. So when you have more earners, you have more purchasing power. This does not mean that you have to be married to own a home with someone. Or even romantically involved. You just need a partner with similar habits, who is also responsible and tired of making his landlord rich.

You should definitely put your joint ownership in writing – how you buy, how you split costs and ownership, and how you break the agreement at the time of sale.

Multiply

Another way to expand the supply is to consider apartment buildings. These are objects with two, three or four units. You live in one, rent out the others, and use the money to pay your mortgage. Pay off that mortgage and you’ve got a nice income stream. There’s a reason so many very wealthy people have started owning rental properties.

come down (payment)

One of the biggest barriers to homeownership, according to many studies and surveys, is down payment and closing costs. But about 90 percent of homes in the US are eligible for some form of down payment assistance (DPA) if the buyer meets the eligibility requirements. And loans like VA mortgages and USDA home loans don’t require a down payment.

You don’t have to be a financial genius to buy a home. You don’t have to be educated or rich. But you have to want it enough and channel that desire into a plan and put that plan into action. Your Actions, not yours educationdelivers the desired result.

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