This Was the National Median Mortgage Payment in February. Can You Swing It?

Home prices are up and so are mortgage rates. It's an unfavorable combination.

Last year, home prices were on a tear as buyers clamored to get a piece of what limited housing inventory existed. This year, home prices are still high.

But buyers today face a challenge that last year's buyers didn't -- rising mortgage rates. For the bulk of 2021, mortgage rates sat at or near historic lows. But so far, 2022 has seen rates rise sharply. As a result, borrowers are taking on higher mortgage payments than they've had to juggle in the past.

In February, the national median monthly mortgage payment for new loan applications reached $1,653, according to the Mortgage Bankers Association. That represents an 8.3% increase from January and a 25.6% increase from a year prior. It also means that now, some buyers may no longer be in a position to purchase a home, even if they were able to just a few months ago.

Can you afford a $1,653 housing payment?

As a general rule, your monthly housing payments should not exceed 30% of your take-home pay. Now there's a little bit of wiggle room with that formula. If you live in a city, for example, where you walk everywhere and spend nothing on transportation, then you may be able to spend 35% to 40% of your earnings on housing since you're saving on another major expense.

But barring that scenario, it's important to keep your housing costs to 30% of your take-home pay or less. Exceeding that threshold could create a scenario where you struggle to keep up with your bills -- housing-related or otherwise. And the last thing you want is unhealthy credit card debt because your housing payments monopolize too much of your income.

Now, getting back to that $1,653 payment. To cover that payment, you'd need a take-home income of $5,510. But that assumes your mortgage payment also covers your property taxes and homeowners insurance payments.

Some mortgage borrowers make a single payment for all three. Others pay their property taxes and homeowners insurance separately. But when we talk about keeping your housing payments to 30% or less of your take-home pay, that includes costs like property taxes and insurance.

If you're not sure what you can afford, run some numbers using a mortgage calculator. You may find that between today's higher home prices and mortgage rates, buying a home just isn't feasible right now.

Will home prices come down soon?

Rising mortgage rates could result in a decline in buyer demand. That could, in turn, have a positive effect on home prices by driving them lower. It may, however, take a few months for that scenario to arise, and so in the near term, buyers can expect home prices to stay elevated.

Meanwhile, mortgage rates could rise from their current levels this year as the Federal Reserve moves forward with planned rate hikes. If buying a home isn't doable based on current prices, it could pay to wait until property values drop. But recognize that getting a mortgage later this year might also, unfortunately, mean getting stuck with an even higher borrowing rate.