At 6.95%, the median new home costs 35% of median household income
One house at $393,700, one household at $87,460, one rate at 6.95%. Every line of the monthly payment from primary sources, set against lenders' own ratios.
- What happened
- The median new house sold in August 2026 cost $393,700 (Census Bureau and HUD, released September 24, 2026). Real median household income was $87,460 in 2025 (Census Bureau, released September 15, 2026). At the 6.95% 30-year rate Freddie Mac reported for the week of September 17, 2026, the payment on that house with 20% down works out to 35.4% of that household's gross monthly income.
- Why
- A mortgage payment is a fixed formula of three inputs: loan size, rate and term. Taxes and insurance sit on top. Dividing the total by gross monthly income gives the ratio lenders use to decide whether a borrower qualifies, and the same ratio tells a household how much of its pay a house would consume.
- The numbers that matter
- $393,700Median new-home sales price, August 2026 (released Sep 24, 2026)$87,460Real median household income, 2025 (released Sep 15, 2026)$2,085Monthly principal and interest, 20% down, 6.95%, 30 years (calculation)35.4%Full payment as a share of gross monthly income (calculation, includes assumed taxes and insurance)
- Why it matters
- The FHA's documented housing ratio is 31% and the common conventional rule of thumb is 28%. At the median price and the median income, the payment exceeds both. The income needed to bring it under 28% is $110,555, 26.4% above the actual median.
- What happens nextas we saw it on 28 Sep 2026
- The Census Bureau and HUD publish September 2026 new-home sales on October 27, 2026. Freddie Mac publishes the Primary Mortgage Market Survey every Thursday; the next is October 1, 2026.
Principal and interest alone take 28.6% of median gross monthly income; with taxes and insurance the total is $2,580 against a 28% guideline of $2,041.
| Principal and interest (calculated) | 2085 |
|---|---|
| Property tax (assumption: 1% of price a year) | 328 |
| Homeowners insurance (assumption: $2,000 a year) | 167 |
| Total monthly payment | 2580 |
Take the house in the middle of the new-home market, the household in the middle of the income distribution, and the mortgage rate Freddie Mac printed for the week of September 17, 2026. Put them through the formula a lender uses. The monthly payment, with a 20% down payment, comes to 35.4% of the household's gross income before a single utility bill. That is above the 31% housing ratio in the Federal Housing Administration's own handbook and well above the 28% figure budgeting guides repeat.
None of that is a prediction or a verdict on whether anyone should buy. It is arithmetic. Every input comes from the agency or company that produced it, and where a figure is assumed, it says so.
The three inputs
The Census Bureau and the Department of Housing and Urban Development released August 2026 new-home sales on September 24, 2026. The median sales price was $393,700, 0.4% (±7.4%) above July's $392,200 and 5.8% (±8.2%) below the $417,900 of August 2025. The average price was $478,700 and sales ran at a seasonally adjusted annual rate of 684,000. The release's asterisk on both price changes means there is insufficient statistical evidence to conclude they differ from zero.
The Census Bureau's report “Income in the United States: 2025” (P60-289), released September 15, 2026, put real median household income at $87,460, up 2.6% from $85,210 in 2024 and the highest in a series that starts in 1967. That is $7,288 a month before tax, and it is a calendar-2025 figure; no official median exists for August 2026.
Freddie Mac's Primary Mortgage Market Survey reported a 30-year fixed average of 6.95% on September 17, 2026, up from 6.76% the week before and 6.26% a year earlier. The 15-year fixed was 6.26%. On September 24, 2026, the survey printed 7.03% for the 30-year and 6.42% for the 15-year. This piece anchors on 6.95%; the 7.03% case is shown below and moves the result by $17 a month.
Line one: principal and interest
A fixed-rate mortgage payment is one formula. For a loan L, a monthly rate i (the annual rate divided by twelve) and n monthly payments, the payment is L × i ÷ (1 − (1 + i)^−n). The glossary entry on how a mortgage works explains why the early payments are mostly interest.
Price $393,700, down payment 20% = $78,740, loan $314,960. Monthly rate 0.0695 ÷ 12 = 0.005792. Term 360 payments. Payment = 314,960 × 0.005792 ÷ (1 − 1.005792^−360) = $2,084.87. The first month's interest is 314,960 × 0.005792 = $1,824, so $261 of the first payment reduces the balance. Over 360 payments the borrower pays $750,554, of which $435,594 is interest.
With 10% down the loan is $354,330 and the payment at 6.95% is $2,345.48. With 5% down the loan is $374,015 and the payment is $2,475.78. Both are below the 20% that lets a conventional borrower avoid private mortgage insurance. Assumption: PMI at 0.5% of the loan a year with 10% down ($148 a month) and 0.8% with 5% down ($249 a month). Actual PMI depends on credit score and insurer.
Lines two and three: taxes and insurance
Property tax and insurance vary by state and by house more than the price does. We could not retrieve a primary page showing the Census Bureau's median real estate taxes paid (American Community Survey table B25103) on September 28, 2026, so both lines are stated assumptions.
This is an assumption, not a measured figure. One percent of $393,700 is $3,937 a year, or $328.08 a month. Effective rates run well below 1% in some states and above 2% in others; a reader should substitute the county's own bill.
This is an assumption. The last published national average premium for a standard HO-3 policy we could see is $1,569 for 2022, from the National Association of Insurance Commissioners as reproduced by the Insurance Information Institute, an industry body (a secondary source here). The NAIC's national analysis of August 5, 2026 reports average premium per policy rising 2.4% to 5.3% a year since 2018 after inflation; compounding $1,569 at those rates for four years gives $1,725 to $1,930. We round up to $2,000, or $166.67 a month; coastal and wildfire-exposed homes pay multiples of this.
The total, and the ratio
| Deposit | Loan | P&I | Tax + insurance (assumed) | PMI (assumed) | Total | Share of $7,288 gross monthly income |
|---|---|---|---|---|---|---|
| 20% ($78,740) | $314,960 | $2,085 | $495 | $0 | $2,580 | 35.4% |
| 10% ($39,370) | $354,330 | $2,345 | $495 | $148 | $2,988 | 41.0% |
| 5% ($19,685) | $374,015 | $2,476 | $495 | $249 | $3,220 | 44.2% |
$2,084.87 + $328.08 + $166.67 = $2,579.62. Divided by $7,288.33 gives 35.4%. Principal and interest alone are 28.6%. At 10% down the share is 41.0% and at 5% down it is 44.2%. Using the average new-home price of $478,700 instead of the median, the 20%-down total is $3,101 and the share is 42.5%.
HUD's underwriting handbook for FHA loans (4155.1, Chapter 4, Section F, dated March 1, 2011) states that the total mortgage payment should not exceed 31% of gross effective income and all recurring debts together 43%, with higher ratios acceptable only with documented compensating factors. Fannie Mae's Selling Guide (B3-6-02, dated April 2, 2025) sets a maximum total debt-to-income ratio of 36% for manually underwritten loans, 45% with stronger credit and reserves, and 50% through its automated system. The Consumer Financial Protection Bureau defines the ratio as all monthly debt payments divided by gross monthly income. The 28% front-end figure does not appear on the Fannie Mae page; it is a rule of thumb, and we treat it as one.
To hold the 20%-down payment of $2,579.62 to 28% of gross income, annual income must be 2,579.62 × 12 ÷ 0.28 = $110,555. At the FHA's 31% the requirement is $99,856. The 2025 median household earned $87,460, so the 28% threshold sits 26.4% above the median and the 31% threshold 14.2% above it. Run the other way: at 28% of median income, with the same assumptions and 20% down, the price that fits is $305,775, 22.3% below the August 2026 median.
Isolating the rate
The rate is the input that has moved most, so hold everything else fixed and change only that. This is a sensitivity table, not a statement that rates go to any of these levels.
| 30-year rate | P&I | Total payment | Share of gross income | Income needed at 28% |
|---|---|---|---|---|
| 7.03% (PMMS, Sep 24, 2026) | $2,102 | $2,597 | 35.6% | $111,280 |
| 6.95% (PMMS, Sep 17, 2026) | $2,085 | $2,580 | 35.4% | $110,555 |
| 6.00% (illustrative) | $1,888 | $2,383 | 32.7% | $102,133 |
| 5.00% (illustrative) | $1,691 | $2,186 | 30.0% | $93,665 |
From 6.95% to 6.00% the P&I falls by $196.53; from 6.00% to 5.00% by $197.57. Even at 5.00% the full payment is 30.0% of median income, still above 28%. The rate explains roughly five points of the gap between 35.4% and 28%; the rest is price relative to income.
Freddie Mac's 15-year fixed rate for the week of September 17, 2026 was 6.26%. On the $314,960 loan over 180 payments the P&I is $2,702.26, $617 a month more than the 30-year, in exchange for owning the house outright fifteen years sooner. The renting versus buying entry covers why the choice is about cash flow as much as cost.
What it means for your money
A household deciding whether a house fits can copy this table with its own numbers; the formula does not care whether the price is a national median or a specific listing. The lines a listing does not show are the ones that matter: the county tax bill, an actual insurance quote, and whether the down payment is above or below 20%.
- The ratio lenders test is gross, not take-home. A payment that is 35% of gross pay is a larger share of what arrives after tax and payroll deductions.
- The down payment changes the payment twice: a smaller loan and, above 20%, no mortgage-insurance line. On this house, moving from 5% down to 20% down cuts the monthly total by $640.
- The 28%, 31% and 36% ratios are underwriting limits, not comfort levels. A household at 31% for housing has 12 points left under the FHA's 43% total for every other debt.
- Once the payment fits, the next question is whether to overpay the mortgage or invest the difference.
What the arithmetic does not say
The median new home is not a house anyone can buy; it is the midpoint of 57,000 sales a month (684,000 ÷ 12) across four census regions with very different prices. The median household is not the median buyer either: new-home buyers, as a group, have higher incomes and equity from a previous sale, which is one reason 684,000 houses a year sell at these prices. And the income is for calendar 2025 while the price is for August 2026, so if incomes rose in 2026 the true ratio is a fraction of a point lower than 35.4%.
Sources
- Monthly New Residential Sales, August 2026U.S. Census Bureau and U.S. Department of Housing and Urban Development · Sep 28, 2026 · Primary source
- Income in the United States: 2025 (Current Population Reports P60-289)U.S. Census Bureau · Sep 28, 2026 · Primary source
- Income, Poverty and Health Insurance Coverage in the United States: 2025 (press release, September 15, 2026)U.S. Census Bureau · Sep 28, 2026 · Primary source
- Primary Mortgage Market Survey, week of September 17, 2026Freddie Mac · Sep 17, 2026 · Primary source
- Mortgage Rates Average 7.03% (Primary Mortgage Market Survey, September 24, 2026)Freddie Mac · Sep 28, 2026 · Primary source
- HUD Handbook 4155.1, Chapter 4, Section F: Borrower Qualifying RatiosU.S. Department of Housing and Urban Development · Sep 28, 2026 · Primary source
- Selling Guide B3-6-02, Debt-to-Income Ratios (04/02/2025)Fannie Mae · Sep 28, 2026 · Primary source
- What is a debt-to-income ratio? (Ask CFPB, last reviewed Aug 28, 2023)Consumer Financial Protection Bureau · Sep 28, 2026 · Primary source
- NAIC Releases First-of-Its-Kind National Analysis of Homeowners Insurance Market Trends (August 5, 2026)National Association of Insurance Commissioners · Sep 28, 2026 · Primary source
- Facts + Statistics: Homeowners and renters insurance (table: Average Premiums For Homeowners And Renters Insurance, 2013-2022, citing NAIC)Insurance Information Institute · Sep 28, 2026 · Secondary source
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