Robust in Richmond: Housing Affordability on the Median Salary

A great place to buy a home, Richmond, Va., offers many versatile and affordable housing options.

Owing to the area’s vibrant economy and diversified work force, the prospect of future affordability looks to remain stable and robust.

According to the American Consumer Survey of 2012, the median family income in Richmond is a healthy $70,514, making both new and resale homes a possibility for the prospective homeowner.

But just how much home will the median salary in Richmond buy? Let’s take a look. It’s impossible to determine exactly how much a person can afford based on salary alone, as affordability is deeply personal and based on such things as credit history, debt-to-income ratio, current interest rates and down payment.

However, we will use two basic models to estimate how much home the median family income in Richmond can buy you. The first is Freddie Mac’s rule-of-thumb that a person can afford roughly 2.5 times their gross annual income. The second is the commonly held view that a person should spend no more than one-third of their monthly income on housing.

Operating under the first theory of affordability, a person making the median salary in Richmond could buy a home for $176,258. This leaves countless options on the resale home front. From foreclosure steals at well-under budget to those pushing the budget boundaries, $176,258 will typically buy you a four-bedroom, two- to three-bath home with anywhere from 1,400 square feet to 2,288 square feet.

There are also options on the new-home front, though newly built homes typically cost more than resale. However, don’t cross new homes off your list just yet, as the premium you pay for a newly built home includes items that prove more cost effective in the long run. Increased energy-efficiency and new, warrantied appliances can mean lower operating costs. Options selections and room for personalization can save you the money you might put into a remodel, not to mention the increased quality of construction newly built homes offer that may extend their longevity.

For the price tag of $179,990, you can purchase a new townhome by Ryan Homes in Mechanicsville, Va., with three beds, two baths and 1,408 square feet. Raising this budget to some $203,950 will buy you a newly built single-family home from HH Hunt Homes in Chester, Va., with three beds, two and one-half baths and 1,852 square feet — and this is where our second affordability model comes into play.

Abiding by the principal that a person should spend no more than one-third of their monthly income on housing, a person making the median salary in Richmond would have a gross monthly income of $5,876. This indicates that person’s monthly mortgage payments should be no more than $1,958. Assuming good credit, low interest rates and a substantial down payment, a person might be able to afford significantly more than the $176,258 threshold. In fact, a good credit score (700 and up), interest rates of 4 percent and a 10-percent down payment bring monthly payments on a $400,000 house to under budget at some $1,793 a month.

Housing affordability in Richmond is strong and the future looks bright. While the median salary can easily make you a Richmond homeowner, working to improve your credit score, pay off debts and save for a down payment will increase your chances of landing more square footage and enable you to tap into higher levels of luxury.

If you are interested in seeing other new homes in Richmond, Va., check out New Home Source, where you can find more than 50 communities with homes priced at less than $250,000.