This Was the Average Mortgage Balance in 2023. Can You Afford It?

Home prices have been on the rise in recent years. And the more money you're forced to spend to buy a home, the higher a mortgage balance you're likely to end up with.

Experian reports that the average mortgage balance in 2023 was $244,498. If you're trying to buy a home today, you may be looking at a similar balance, a higher one, or a lower one. But how do you know if the mortgage balance you're looking to take on is affordable? There's actually a pretty simple way to figure it out.

See what interest rate you qualify for

Let's say you're looking at a mortgage of $245,000 (which is roughly the average balance from last year). Whether that's affordable for you will largely hinge on the interest rate you qualify for.

Right now, the average 30-year mortgage rate is 7.22%, reports Freddie Mac. But if you have an excellent credit score, you may be able to snag a rate that's slightly lower. And if your credit isn't great, your rate might, unfortunately, be a lot higher.

It's important to shop around with different mortgage lenders when you're looking to sign a mortgage. Each lender ultimately sets its own criteria, so the offer you get from one may be notably different from another.

See what your fixed housing costs amount to

Let's say you shop around with different lenders and find that the best mortgage rate you can qualify for is 7.2% right now. For a $245,000 mortgage being paid off over 30 years, that results in a monthly payment of $1,663 for principal and interest on your loan.

But is $1,663 a sum you can swing? That depends on what your remaining fixed housing costs look like and what your monthly paycheck amounts to. Let's say that in addition to $1,663 a month, you're facing a $250 monthly property tax bill and $87 a month for homeowners insurance. That brings your housing costs to $2,000.

As a general rule, you should aim to keep your fixed housing expenses at or below 30% of your take-home pay. So if you bring home $6,667 a home or more, then you're generally okay to take on a monthly housing expense of $2,000. However, if you only bring home $5,400 a month, then you're looking at spending 37% of your pay on housing. That puts you at risk of falling behind on that expense or other bills.

Whether you're looking to take on a mortgage that's roughly in line with the average balance or not, it's important to make sure you're committing to payments you can truly afford. So make an effort to shop around with different lenders for a good deal on a mortgage rate, and then run the numbers to make sure you're not spending more than 30% of your income on housing. Going through these steps could help you approach homeownership with a lot more peace of mind.