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How Much Home the Rent Buys in the 20 Most Expensive U.S. Cities

How Much Home the Rent Buys in the 20 Most Expensive U.S. Cities

Harry Jensen, Trusted Mortgage Expert with 45+ Years of Experience
, Trusted Mortgage Expert with 45+ Years of Experience

The homeownership rate hit a multi-decade low in 2015.  More people are renting instead of buying due to many factors including tighter lending standards, the inability to save for a down payment and a lack of attractive or affordable housing inventory.  The shift toward renting has caused rents to increase significantly in many cities across the country.  In February the median rent for a one bedroom apartment in San Francisco was $3,460 according to apartment listing website Zumper.com — for a one bedroom apartment!!!

People rent for many reasons — lifestyle decision, no long term commitment or financial obligation, no fretting about home repairs or fluctuations in property values.  Additionally, it certainly can be challenging to save for a down payment and in some markets you simply cannot buy much home for your money.  But another reason people rent is because they are unaware what size mortgage they can afford.  In many cases, renters would like to buy but they have no idea how far their rent could take them when it comes to getting a mortgage.  With a better understanding of what size mortgage they can afford, based on what they are already paying for rent, renters may realize that buying a home is more attainable than they thought.

FREEandCLEAR used our Rent Payment Mortgage Affordability Calculator to determine the mortgage equivalent for the 20 U.S. cities with the highest median monthly rent.  Simply put, the mortgage equivalent is what size mortgage someone could afford if their monthly mortgage payment was their monthly rent payment.  For example, instead of paying $2,000 a month in rent, what mortgage could you afford with a $2,000 mortgage payment?

The table below shows the mortgage equivalent for the cities with the highest median rent, with a range of approximately $760,000 in San Francisco (based on $3,460 in rent) to approximately $240,000 in Houston (based on $1,090 in rent).  There are a couple of important caveats to the analysis.  First, the analysis shows the mortgage amount based on the rent payment but homeowners are also required to pay additional expenses such as hazard insurance and property taxes.  These extra expenses, however, are offset by the mortgage interest tax deduction benefit so in many situations, homebuyers come out more or less even.  The analysis below suggests people who are renting in many of these cities could afford relatively large mortgages.

City Median Rent
One Bedroom
Mortgage
Equivalent
1 San Francisco $3,460 $758,687
2 New York $3,000 $657,821
3 Boston $2,300 $504,329
4 Washington D.C. $2,000 $438,547
4 Oakland $1,980 $434,162
6 San Jose $1,900 $416,620
7 Los Angeles $1,760 $385,921
8 Miami $1,750 $383,729
9 Chicago $1,670 $366,187
10 Seattle $1,639 $359,389
11 San Diego $1,480 $324,525
12 Philadelphia $1,350 $296,019
13 Minneapolis $1,320 $289,441
14 Denver $1,300 $285,056
15 Portland $1,300 $285,056
16 Atlanta $1,150 $252,165
17 Dallas $1,150 $252,166
18 Long Beach $1,100 $241,201
19 Baltimore $1,100 $241,201
20 Houston $1,090 $239,008
Source: Zumper (Median Rent). Mortgage equivalent based on interest rate of 3.625%

It is interesting to understand what size mortgage you can afford based on your rent payment but it is important to highlight that just because you can afford a mortgage payment does not mean you can qualify for the mortgage.  Your credit score, financial profile, lender qualification requirements and other factors will determine your ability to get a mortgage.  Of particular interest to prospective home buyers is how much money they need earn to qualify for a mortgage.  

The table below shows the annual gross income required to qualify for the mortgage equivalent in each city.  For example, to qualify for an approximately $760,000 mortgage in San Francisco requires approximately $137,000 in annual gross income as compared to approximately $43,000 in gross income for an approximately $240,000 mortgage in Houston.  Because lenders look at an applicant’s debt in addition to their income we assumed a level of borrower debt as a percentage of income for the analysis.         

It is important to put the required income figures into context so we also included the median gross income for the city.  If the required income to qualify for a mortgage is above the median city gross income that means fewer people in the city make enough money to qualify for the mortgage based on what they are paying for rent.  If the required income to qualify for a mortgage is below the median city gross income that means more people make enough money to qualify for a mortgage.

 
It is interesting to highlight that in sixteen of the twenty cities, the median city gross income is higher than the required income to qualify for a mortgage which suggests more renters should be buying.  On the flip side, New York (~$38,000) and San Francisco (~$35,000) have the largest gap between the median city gross income and the income required to qualify for a mortgage based on monthly rent.  This significant difference implies that the percentage of renters who actually make enough money to qualify for a mortgage to buy a home is much lower than in other cities.

City Mortgage
Equivalent
Required Annual
Gross Income
City Median
Gross Income
1 San Francisco $758,687 $137,232 $101,900
2 New York $657,821 $119,004 $80,700
3 Boston $504,329 $91,236 $98,500
4 Washington D.C. $438,547 $79,332 $109,200
4 Oakland $434,162 $78,528 $98,500
6 San Jose $416,620 $75,372 $106,300
7 Los Angeles $385,921 $69,804 $67,900
8 Miami $383,729 $69,432 $57,500
9 Chicago $366,187 $66,228 $76,000
10 Seattle $359,389 $65,004 $89,600
11 San Diego $324,525 $58,704 $73,000
12 Philadelphia $296,019 $53,568 $81,100
13 Minneapolis $289,441 $52,368 $86,600
14 Denver $285,056 $51,564 $79,900
15 Portland $285,056 $51,564 $73,900
16 Atlanta $252,165 $45,636 $68,300
17 Dallas $252,166 $45,636 $70,400
18 Long Beach $241,201 $43,632 $67,900
19 Baltimore $241,201 $43,632 $89,600
20 Houston $239,008 $43,236 $69,300
U.S. Median Annual Gross Income $65,800
Source: Required income assumes borrower debt and standard debt-to-income ratio.  Median income data uses the greater of HUD or FHFA median family income

Determining what size mortgage you can afford is one thing but determining what price home you can afford is another.  Home buyers are typically required to make a down payment of 10% – 20% of the property purchase price.  In the table below we show the home price based on the mortgage equivalent in each city assuming a 20% down payment.  For example, based on the median rent in San Francisco, the mortgage equivalent is approximately $760,000, and assuming you make a 20% down payment you could buy an approximately $950,000 home.  Granted, coming up with a 20% down payment (~$190,000 in the San Francisco example) is highly challenging for many home buyers and it is certainly possible to buy a home with a lower down payment but the analysis shows how much home a renter could potentially afford in these cities.

The table also includes the city median home price so you can compare the home price based on the rent to the home sales price for each city.  In sixteen of the twenty cities, home price based on rent is higher than median home price which suggests that more renters could afford to buy homes in those cities.  Cities with a home price based on rent lower than the median home price may have less affordable housing inventory for renters who want to buy.

City Mortgage
Equivalent
Home Price
Equivalent
City Median
Home Price
1 San Francisco $758,687 $948,359 $782,300
2 New York $657,821 $822,276 $475,900
3 Boston $504,329 $630,411 $403,900
4 Washington D.C. $438,547 $548,184 $385,200
4 Oakland $434,162 $542,703 $782,300
6 San Jose $416,620 $520,775 $950,400
7 Los Angeles $385,921 $482,401 $476,800
8 Miami $383,729 $479,661 $283,800
9 Chicago $366,187 $457,734 $218,900
10 Seattle $359,389 $449,236 $379,700
11 San Diego $324,525 $405,656 $542,600
12 Philadelphia $296,019 $370,024 $223,700
13 Minneapolis $289,441 $361,801 $225,100
14 Denver $285,056 $356,320 $353,600
15 Portland $285,056 $356,320 $312,100
16 Atlanta $252,165 $315,206 $173,600
17 Dallas $252,166 $315,208 $207,200
18 Long Beach $241,201 $301,501 $476,800
19 Baltimore $241,201 $301,501 $242,800
20 Houston $239,008 $298,760 $213,400
U.S. Median Existing Home Price $223,900
U.S. Median New Home Price $278,800
Source: Home price equivalent assumes 20% down payment.  City median existing home price data from National Association of Realtors. Median new home price from U.S. Census

It is important to emphasize that the tables above show the mortgage and home price equivalents based on the median one bedroom apartment rent in each city.  But many prospective home buyers rent two bedroom apartments and you could argue that an individual or family renting a two bedroom residence is more inclined to buy a home than someone in a one bedroom residence. 

The table below shows the mortgage equivalent, home price equivalent and required annual gross income to qualify for a mortgage based on the 20 U.S. cities with the highest median two bedroom monthly rents.  The table amplifies the one bedroom rent findings.  The home price equivalent ranges from a whopping ~$1.275 million in San Francisco (based on $4,650 in monthly rent) to a very respectable $375,500 home price equivalent in Austin (based on $1,370 in monthly rent).  Looking at the two bedroom results reinforces that more renters could consider buying homes.

City Median Rent
Two Bedroom
Mortgage
Equivalent
Home Price Equivalent Required Annual Gross Income
1 San Francisco $4,650 $1,019,622 $1,274,528 $184,464
2 New York $3,600 $789,385 $986,731 $142,800
3 Washington D.C. $2,770 $607,388 $759,235 $109,872
4 Boston $2,670 $585,460 $731,825 $105,900
5 Los Angeles $2,500 $548,184 $685,230 $99,168
6 San Jose $2,380 $521,871 $652,339 $94,404
7 Miami $2,300 $504,329 $630,411 $91,236
8 Oakland $2,270 $497,751 $622,189 $90,036
9 Chicago $2,220 $486,787 $608,484 $88,068
10 Seattle $2,150 $471,438 $589,298 $85,296
11 San Diego $1,840 $403,463 $504,329 $72,996
12 Minneapolis $1,700 $372,765 $465,956 $67,428
13 Denver $1,650 $361,801 $452,251 $65,472
14 Long Beach $1,600 $350,838 $438,548 $63,468
15 Dallas $1,550 $339,874 $424,843 $61,500
16 Portland $1,450 $317,947 $397,434 $57,528
17 Philadelphia $1,400 $306,983 $383,729 $55,536
17 Atlanta $1,400 $306,983 $383,729 $55,536
17 Baltimore $1,400 $306,983 $383,729 $55,536
20 Austin $1,370 $300,405 $375,506 $54,336
Source: Zumper (Median Rent). Mortgage equivalent based on interest rate of 3.625%.  Home price equivalent assumes 20% down payment.  Required income assumes borrower debt and standard debt-to-income ratio  

Being able to afford a mortgage is only one of many factors that go into the decision to buy a home.  Our analysis suggests that in many cities buying a home may be more feasible for renters than they think.  Many people weighing renting versus buying do not think home ownership is attainable but climbing rents and low interest rates could make home ownership more attractive.  Plus your rent dollars may take you farther than you think when it comes to getting a mortgage and buying a home.

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About the author

Harry Jensen, Mortgage Expert

Harry is the co-founder of FREEandCLEAR. He is a mortgage expert with over 45 years of industry experience. Over his career, Harry has closed thousands of loans for satisfied borrowers and now offers his advice and insights on FREEandCLEAR.  Harry is a licensed mortgage professional (NMLS #236752). More about Harry

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