The text that shattered my group chat
Last week my friend Kayla sent a screenshot from her lender: preapproved only up to $285,000 unless her household income hit $117,000. She makes $92,000 as a marketing manager, her partner is in grad school. The group chat went silent, then chaos.
She wasn't trying to buy a McMansion. Just a 2 bed starter 35 minutes from downtown. The math still clobbered her.
If that sounds familiar, you're not alone. For 2025, the income target a lot of buyers are hearing is around $117k to comfortably carry a starter home. Not luxury, not turnkey, just livable and within commuting distance.
So... $117k to buy a starter?
That number isn't a flex, it's a function of math lenders use. They look at your debt to income ratio, which is just your monthly debt payments divided by your gross paycheck. No fancy tricks, just fractions and rules.
Most lenders want your housing costs under 30% of your gross income, and your total debts under 45%. Housing costs mean principal and interest, property taxes, insurance, and usually HOA and PMI if you put less than 20% down.
When prices stay high and rates hover near 7%, that 30% slice has to come from a bigger pie. Hence the six figure income requirement for something that used to be entry level. It's not you, it's the arithmetic plus a supply problem.
Where that number comes from
Let's run a real example. Price a typical starter at $350,000, put 10% down, finance $315,000 on a 30 year fixed at 7.1%. That interest line hurts, I know.
Your principal and interest would land near $2,120 a month. Add property taxes at 1.25% a year, about $365 a month, plus $120 for homeowners insurance, $150 for PMI, and a modest $200 HOA. Now we're stacking fees like it's a streaming bundle.
Total payment: roughly $2,955 a month. To keep that under 30% of your gross, you'd want about $9,850 a month in income, or around $118,000 a year. That's the $117k headline in plain numbers.
If you only put 3% down, PMI jumps and your loan is bigger. The payment pushes past $3,100, and now you need closer to $124,000 to stay under that 30% guideline. The down payment lever matters, but it's not magic.
And this is before student loans or car payments hit your total DTI. A $300 student loan can cap your preapproval even if your housing number works. Lenders underwrite all the monthly obligations, not just the mortgage.
City by city reality check
Prices and taxes vary a lot, but the theme is the same. Here's how the monthly shakes out in a few spots for a starter level place. Nothing fancy, just typical listings.
Columbus: $280,000 townhome, 10% down, 6.9% rate, taxes higher at 1.6%. Payment roughly $2,250. Income needed to keep it near 30% is about $90,000.
Phoenix: $420,000 ranch, 10% down, 7.1% rate, taxes lower near 0.6%. Payment around $3,300. Income needed hovers around $132,000.
Austin: $380,000 condo with $275 HOA. Payment about $2,950. You need roughly $118,000 to make the ratios work without sweating every first of the month.
Tampa: $360,000 new build with builder insurance and 1.0% taxes. Payment near $2,800. Income needed around $112,000 by the 30% rule of thumb.
Swap in your city and the shape stays similar. Cheaper sticker price, higher taxes, or higher HOA. The payment ends up back in the same ballpark more often than you'd think.
Rates matter more than granite countertops
A one point rate drop often moves your buying power by roughly 10%. That's why people obsess over 6.5% vs 7.5%. The cabinets can wait, the rate can't.
On a $315,000 loan, 7.5% is about $2,205 for principal and interest. At 6.5% it's roughly $1,990. That's a $215 swing, or about $2,600 a year, without changing the house or the neighborhood vibe.
If rates fall to the mid 6s in 2025, some buyers get unlocked. But prices can stick, because sellers wait for those same buyers. Welcome to the tug of war that keeps affordability weird.
The down payment trap
You don't need 20% down to buy. But your monthly and your risk change depending on how much you bring. Cash reduces interest, PMI, and sometimes your rate tier.
At $330,000, 3% down is $9,900. Your loan is $320,100, PMI is heavier, and your total payment might land near $2,900 to $3,050. Closing costs still show up, usually 2% to 3% of the price.
At 10% down, you bring $33,000 and the loan is $297,000. PMI shrinks and the payment can drop by $120 to $180 a month. That adds up to $1,500 to $2,100 a year for the same house and street.
At 20% down, you bring $66,000, ditch PMI, and maybe save another $140 a month. That's great, but a lot of buyers don't have $66k sitting there. Especially while paying $2,100 rent and $400 car payments.
If saving the extra down payment takes three years, check what prices and rent do in the meantime. Sometimes buying sooner with PMI still wins. Sometimes waiting is smarter, especially if your city is still correcting from a 2021 spike. Run both scenarios and keep receipts.
Your starter home playbook
- Fix your credit: Jumping from a 680 to a 760 score can cut your rate by 0.5 to 0.75 points, which might save $150 to $250 a month on a typical loan. Pay cards before the statement date, keep utilization under 10%, and ask for higher limits. Our Koi Circle Blueprint on credit card optimization breaks down the exact moves.
- Use down payment assistance: Many states and cities offer $10,000 to $25,000 grants or 0% deferred loans for first time buyers. Teachers, nurses, and public workers often have extra perks. Pair DPA with FHA 3.5% down and you can get in with far less cash than you think.
- Ask for a seller paid rate buydown: A 2-1 buydown or permanent points paid by the seller can chop $150 to $300 off your first year payment. In slower markets, 3% seller credits are common. Use that to buy the rate instead of just lowering price by a token amount.
- House hack on day one: Rent a room for $900, or buy a duplex with FHA 3.5% down and let the other unit cover half the mortgage. Some cities are pro ADU, so a garage studio can turn into $1,100 a month. Your future self will thank you even if your inner introvert grumbles.
- Consider condos, townhomes, and builder incentives: Condos and townhomes trade a yard for lower prices. Builders sometimes cover closing costs or offer below market financing on select lots. Watch HOAs and special assessments, but don't ignore the savings just because the counters aren't quartz yet.
- Expand your search radius strategically: Moving 10 to 20 minutes further out can shave $40,000 off the price in some metros. That might drop the payment by $250 a month. Balance it against commute cost and your time, not just a map pin that looks cute.
- Add income, even temporarily: Overtime, contract gigs, or a seasonal side hustle that adds $1,000 a month can unlock a higher preapproval. Lenders want a track record, so start 2 to 3 months before you apply. Our Blueprint on side hustles and income diversification has plug and play ideas that won't wreck your sleep schedule.
- Stack your cash efficiently: Keep your down payment in high yield savings or T bills so it's earning 4% to 5% while you shop. Still grab your 401k match, then funnel extra to the down payment fund. If you want a small upside swing, our investment basics and alternative investment guides cover index funds and fun stuff like Pokémon cards or CS:GO skins without going overboard.
If buying still doesn't pencil out
Renting isn't failure. Owning at the wrong price can trap you. You want a home, not a handcuff.
Run a buy vs rent over 5 to 7 years, not just year one. Include maintenance at 1% of home value per year, plus closing costs and the refinance fantasy you might be banking on. If the numbers still scream, step back without shame.
If the gap is huge, park your down payment in high yield savings and automate investing for retirement. A boring index fund plus your 401k match can jump your net worth faster than a stretched mortgage. Compounding is the one lever the market gives you for free if you show up consistently.
Consider building equity in other assets while you wait. Small bets in collectibles can work if you know the niche, but keep it as fun money. Our alternative investment Blueprints break down risks and storage so you don't end up with a closet full of cardboard and regret.
The bigger problem isn't you
Inventory is tight because millions of owners are locked into 3% mortgages and refuse to trade up. Builders haven't produced enough entry level homes, and zoning makes it hard to add duplexes and townhomes. Supply has been behind for a decade, then COVID broke the gear.
Institutional buyers don't own the entire market, but in some neighborhoods they're the best cash offer on day one. That raises comps, which affects the appraisal you need to hit. It also scares off sellers from taking FHA or VA with thin margins.
Policy can help. Legalizing small multifamily near transit, speeding up permits, and adding rehab loans for vacant homes would matter more than another viral budgeting tip. I'd love more starter homes and fewer vacant office towers, personally.
So if you feel like you're doing everything right and still short, it's not a personal failure. It's a supply and math problem. Keep that perspective when the open house line wraps around the block.
Your next move
Figure out your current number, not the internet's number. Get a real preapproval, then decide if you want to push, pivot, or pause. All three are valid in 2025.
When you're ready to game plan, our Koi Circle Blueprint guides can help. Start with credit card optimization, side hustle strategies, and investment basics, then add alternatives if you want a small, fun upside bet while you save. Make the system work for you where it actually can.
Homeownership in 2025 is hard, but not hopeless. Make a plan, run the math, and give yourself grace on the timeline. We'll be here with the numbers and the playbooks when you're ready.