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Starter Homes Nashville

Starter homes… Is there such a thing these days? My wife and I purchased our starter home in September 2002: 3 bedroom, 2.5 bath and 2000 sqft . The purchase price was $144,000. After looking at the tax records, the home we purchased was built in 1994 and sold to the previous owners with a loan amount of $115,000. We sold this home in 2017 for $250,000, 75% above our purchase price!

If you take our same home and build it today, it would probably sell for $275,000 or higher depending on the location in Middle TN. Why? Land cost have more than quadrupled in Middle, TN over the last 10 years. A 1/4 of an acre lot 10-15 years ago sold between $5,000 and $10,000. Today that same lot is selling for $80,000+ depending on the location in Middle, TN. Coupling the lot increases with higher construction and material costs explains why we will never see starter home prices under $200K, unless you want to live in the outer counties of Middle TN.

What does all this mean? According to the average household income in Rutherford County is $83K a year. However, if you really want to see where a majority of working households fall, the median income is a good barometer. According to Rutherford Works, the median income is $66,000. An assumption is made based on the median income, a significant number of working households in Rutherford County bring home an average of $66K ($5,076/month) or less. This is equivalent to 2 working parents at Amazon making the min salary of $15/hr.

How much home can residents afford making $5K/month? A lot of banks govern themselves within a 35-40% debt to income ratio (DTI – monthly expenses divided by monthly income). Some banks will push 50% DTI. Being conservative, let’s use 40% debt to income ratio. Your total debt (house payment, revolving credit cards, car payment) does not exceed 40% of your monthly income.

If a typical family has $1,000/month in financial obligations ($300/month in credit card payments and $700/month in car payments) a balance of $1,030 is left for rent/mortgage expenses. $1,030 is not a lot of room, so let’s assume the family pays off their credit card debt, leaving a balance of $1,330 for rent/mortgage expenses. Assume taxes and insurance are going to run $250/month (depending on the county) and will be added to the mortgage, leaves a loan payment amount of $1,080. Using a reverse engineering calculator, a monthly loan payment amount of $1,080 at 5% interest rate for 30 years compounding, the loan amount should not exceed $202,000 to stay within 40% DTI. If you are within this income bracket, and have been looking for a home in Rutherford County, you have experienced the frustration of competing for multiple offers. And the only new construction within this price point in Middle, TN are multifamily housing (town homes and condos). Unfortunately, this where our housing market stands. As a result starter single family dwelling homes are now starting in mid to high 200’s.

Nevertheless, our housing prices are still below the national average. If you are moving from California, Michigan or any other city to Nashville? Check out the cost of living comparison calculator below to see the differences.

Are you relocating to Nashville or looking for a new home? Consider Rutherford County, one of Nashville’s affluent counties with top schools, great jobs, and affordable housing. Michael’s Homes, LLC is a speculative and custom builder. Building homes in the mid $200’s to high $600’s. We have lots available for build to suite or we can build on your land. Contact us at [email protected] for questions or call 615-216-4589

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