If you’re ready to buy a new home, the first question you need to ask yourself is — how much house can I afford?
To help you make a well-informed decision, we’ll share 12 factors that can affect mortgage affordability, two rules of thumb to give you a ballpark estimate, a few real-world examples, and a helpful calculator for exploring different options.
So, how much home can you afford? Let’s figure it out!
Home Affordability Calculator
If you’ve been looking for a “how much house can I afford” calculator, you’ve found it! By using our home affordability calculator, you can see what a realistic mortgage looks like based on your financial estimates and other details. You can also evaluate which scenarios work better for your situation. For example, you could compare 15 and 30-year mortgage terms.
Keep in mind that while the home affordability calculator is a useful planning tool, you should always speak to your financial advisor or mortgage broker before moving forward. It’s also important to define all the factors that go into the affordability calculator. Let’s talk about that next.
How to Calculate Home Affordability
Looking for a quick answer to “how much can I spend on a house” is not always possible. There are a lot of factors to consider. But don’t worry, once you understand these 12 factors, you’ll feel more confident in calculating a comfortable range. Let’s discuss each one and how they affect how much house you can afford.
Annual Income
Naturally, your annual income is one of the biggest factors in how much mortgage you can afford. When you do any calculations, be sure to use your net income. In other words, what you make after taxes or your “take-home” pay.
Monthly Debts and Expenses
Annual income only gives lenders a partial picture of your financial health. They also must consider your monthly debts and expenses. You’ll need to add up any recurring debts, such as student loans, car payments, or credit cards.
Debt-to-Income (DTI) Ratio
To calculate your DTI ratio, take your total debt amount and divide it by your gross income (including taxes). For example, if your debt is $4,000 per month and your monthly gross income is $12,000, your DTI is $4,000 ÷ $12,000, or 33 percent. Most lenders want your DTI to be under 36 percent.
Down Payment
A down payment is the cash you pay upfront to get a home loan, typically a percentage of the total sales price of the house. If you make a down payment of less than 20 percent, most lenders will require private mortgage insurance or PMI. Borrowers pay PMI until they have accumulated 20 percent equity in the home. It’s typically .5 to one percent of the loan balance. You’ll have to weigh the costs of waiting to save more for a down payment versus paying PMI.
Credit Score
Your credit score is a three-digit number that predicts how likely you are to repay debt. Credit scores are calculated using your payment history, the amount of debt you have, and the length of your credit history. The higher your score, the more likely you’ll receive favorable credit terms, which may translate into lower payments and less interest.
Interest Rates
The interest rate on your mortgage represents a payment to your lender for servicing the loan. The interest rate can either be fixed or variable. A variable interest rate is tied to a benchmark interest rate known as an index. When the index changes, your interest rates also change. Your lender will determine your mortgage interest rate based on the general interest rate market and their assessment of your likelihood to repay (based on your credit score).
Loan Term
While a 30-year term is the most common mortgage option, choosing a shorter term will significantly reduce the amount of interest you pay over the life of the loan. However, it will also make your monthly payments higher, so you have to evaluate what would work best for you, based on your current and future earning potential.
Closing Costs
Closing costs include a variety of expenses such as attorney fees, title transfer, taxes, and lender costs. You may also be able to negotiate with the home seller or your lender to cover some of these. The amount varies according to the size of your loan and tax laws in your area, but on average, closing costs are two to five percent of the purchase price.
Property Taxes
Your property taxes are based on the tax rate for where you live and the value of your home. For example, if your home is worth $200,000 and your local tax rate is 1.5%, your property taxes would be $3,000 annually. This is separate from your mortgage payment, so you need to budget for this additional expense once you’re a homeowner.
Home Insurance
Homeowners insurance provides financial protection for your home and belongings in case of disaster or theft. The average annual premium is around $1,200, but costs vary depending on where you live and the size of your home. This should also be added to your new budget.
HOA
A homeowners association (HOA) is an organization makes and enforces rules for properties within its jurisdiction. If you purchase a home that’s part of an HOA, you’ll have to pay HOA fees, which go toward property maintenance, improvement, and community amenities. If you’re considering a condominium or planned community, be sure to factor these added fees into your budget.
Homeownership Costs
As noted above, many new homeowners overlook property taxes, home insurance, and (if applicable) HOA fees. When you calculate what mortgage you can afford, be sure to factor these into your budget. You should also consider the costs of regular maintenance. Plus, assuming you own a house for many years, you may need to repair, overhaul, and/or replace several expensive items, such as the roof or furnace.
What’s the Rule of Thumb for Mortgage Affordability?
Now that you have a better understanding of all the factors you should consider, another way to calculate what mortgage you can afford is by using generally accepted “rules” that bring these elements together. Like the home affordability calculator, these should be taken as guidelines only. However, they’re another helpful tool to answer the all-important question of how much mortgage can I afford.
Multiply Your Annual Income by 2.5
In this rule of thumb, you begin with your gross annual income. That’s the income from your W-2 (before taxes are removed). Multiply this number by 2.5 to estimate the maximum value of the home you can afford. However, keep in mind that the lower the interest rate you can obtain, the higher the home value you can afford on the same income. This is why your credit score is so important. Let’s take a look at a few examples.
How much house can I afford if I make $50K per year?
On a 50k salary, how much mortgage could you afford? According to this rule of thumb, you could afford $125,000 ($50,000 x 2.5). Let’s say you have a 4.5 percent interest rate and choose a 30-year mortgage. Your monthly mortgage payment would be $633. With interest, you’d pay a grand total of $228,008.
How much house can I afford if I make $70K per year?
Let’s look at a mortgage on 70k salary. Assuming the same 4.5 percent interest rate and a 30-year term, you could afford a mortgage of $175,000 ($70,000 x 2.5). This translates into $887 per month, totaling $319,212 after 30 years.
How much house can I afford if I make $100K per year?
If you’re wondering with 100k salary how much house can I afford, the 2.5 rule gives you a mortgage of $250,000. Using a 4.5 percent interest rate and a 30-year term, this translates into $1267 monthly, which equals $456,017 over 30 years.
How much house can I afford if I make $200K per year?
A mortgage on 200k salary, using the 2.5 rule, means you could afford $500,000 ($200,00 x 2.5). With a 4.5 percent interest rate and a 30-year term, your monthly payment would be $2533 and you’d pay $912,034 over the life of the mortgage due to interest.
The 28/36 Rule
Lenders often use the 28/36 rule to determine how much house you can afford. Unlike the 2.5 rule, this calculation can help you factor in more than just the mortgage amount. Here’s how it works.
- Front-End Ratio – Your monthly mortgage payment should be no more than 28 percent of your pre-tax monthly income. This includes property taxes, homeowners insurance, private mortgage insurance, and HOA fees (if applicable).
- Back-End Ratio – Your total debt should be no more than 36 percent of your pre-tax income. We defined this earlier as your debt to income ratio, but it’s also referred to as your back-end ratio.
Let’s work through an example. The table below shows what we’re using to demonstrate the calculations, but you can replace these numbers with your own estimates. In our scenario, we’re assuming an annual gross income of $100,000 and total debt of $10,000. Would this allow someone to afford a mortgage of $200,000?
In the above scenario, a person making $100,000 in gross income with $10,000 of debt would meet the 28/36 criteria. Here’s how:
Front-End Ratio
- The annual gross income of $100,000 works out to $8333 on a monthly basis.
- Monthly housing expenses should be less than 28 percent of $8333, which is $2333.
- Since monthly housing expenses would be $1324 for a $200,000 mortgage, that means the front-end ratio is 16 percent, well below the required 28 percent.
Back-End Ratio
- With $10,000 in total debt, that adds $833 per month, for a total of $2157 in monthly expenses.
- Total debt should be no more than 36% of your monthly gross income, which is $3000.
- Since total monthly expenses are $2157, that’s 26 percent of your income. This is under 36 percent.
So What’s Next?
Hopefully, you now have a better sense of your mortgage affordability. By understanding the variables involved in purchasing a home and how they affect what you can afford, you’ll be prepared to make smart decisions. To learn more, we encourage you to read our guide, 10 Steps to Buying a Home.
When you’re ready, you’ll want to select an agent to guide you through the process and get pre-approved by your bank. That way, you’ll know how much they’re willing to lend you. But keep in mind, just because you qualify for a specific amount doesn’t necessarily mean you can afford it. Be sure to consider your entire financial situation and choose a mortgage budget that fits your needs – now and in the future.
FAQs
How much house can I afford if I make $200K per year? A mortgage on 200k salary, using the 2.5 rule, means you could afford $500,000 ($200,00 x 2.5). With a 4.5 percent interest rate and a 30-year term, your monthly payment would be $2533 and you'd pay $912,034 over the life of the mortgage due to interest.
What house can I afford with a $60000 salary? ›
How much of a home loan can I get on a $60,000 salary? The general guideline is that a mortgage should be two to 2.5 times your annual salary. A $60,000 salary equates to a mortgage between $120,000 and $150,000.
Can I afford a $300 K house on a $70 K salary? ›
On a $70,000 income, you'll likely be able to afford a home that costs $280,000–380,000. The exact amount will depend on how much debt you have and where you live — as well as the type of home loan you get.
How much income do you need to buy a $800000 house? ›
For homes in the $800,000 range, which is in the medium-high range for most housing markets, DollarTimes's calculator recommends buyers bring in $119,371 before tax, assuming a 30-year loan with a 3.25% interest rate. The monthly mortgage payment is estimated at $2,785.
Can I afford a 300k house on a 100K salary? ›
A $100K salary puts you in a good position to buy a home
With a $100,000 salary, you have a shot at a great home buying budget — likely in the high-$300,000 to $400,000 range or above. But you'll need more than a good income to buy a house. You will also need a strong credit score, low debts, and a decent down payment.
What salary do you need for a 400k house? ›
The primary factor is your income — a $400,000 purchase typically requires a salary of at least $106,000. Other important considerations include your credit score, the size of your down payment and the details of your mortgage loan, including the interest rate.
Can I buy a 300K house with 60k salary? ›
To purchase a $300K house, you may need to make between $50,000 and $74,500 a year. This is a rule of thumb, and the specific salary will vary depending on your credit score, debt-to-income ratio, type of home loan, loan term, and mortgage rate.
What salary can afford a 500k house? ›
To afford a $500,000 home, a person would typically need to make about $140,000 a year, said Realtor.com economic data analyst Hannah Jones. The principal and interest payments would total $2,791 per month, and with taxes and insurance, that number comes up to $3,508.
What house can I afford on 120k a year? ›
Safe debt guidelines
If you make $50,000 a year, your total yearly housing costs should ideally be no more than $14,000, or $1,167 a month. If you make $120,000 a year, you can go up to $33,600 a year, or $2,800 a month—as long as your other debts don't push you beyond the 36 percent mark.
Can I afford a 500k house on 100K salary? ›
A 100K salary means you can afford a $350,000 to $500,000 house, assuming you stick with the 28% rule that most experts recommend.
You need to make $111,009 a year to afford a 300k mortgage. We base the income you need on a 300k mortgage on a payment that is 24% of your monthly income.
How much house can I get for $3000 a month? ›
For example, if you make $3,000 a month ($36,000 a year), you can afford a mortgage with a monthly payment no higher than $1,080 ($3,000 x 0.36). Your total household expense should not exceed $1,290 a month ($3,000 x 0.43). How much house can I afford with an FHA loan?
How much income to buy a $1 million dollar home? ›
To afford a 1 million dollar home, you need a minimum annual income of $200,000 to $225,000. You'll also need to have enough money saved for the down payment and closing costs, which can add up to over 20% of the purchase price.
What income do you need for a $1000000 mortgage? ›
A homebuyer would need to earn nearly $200,000 annually to afford a $1 million mortgage. The number of homes in the United States valued at $1 million or more has steadily increased in recent years.
How much income to afford $1,000,000 home? ›
As a general rule, you'll need an annual household income of at least $225,384 in order to afford a million-dollar home. However, specific salary requirements depend on factors like your interest rate and the size of your down payment.
Can a family of 4 live on 100k a year? ›
It can be more than enough for an individual or even a small family to live comfortably. With $100,000 a year, a person could cover typical expenses, pay down debt, build their savings, contribute toward retirement, invest, and still have enough money for entertainment, hobbies, and vacations.
Can I afford a 1 million dollar house if I make 100k a year? ›
Experts suggest you might need an annual income between $100,000 to $225,000, depending on your financial profile, in order to afford a $1 million home. Your debt-to-income ratio (DTI), credit score, down payment and interest rate all factor into what you can afford.
What home can I afford with 150k salary? ›
The lower your down payment, the higher your monthly mortgage payment. “With a $150,000 income, you could potentially save up to $100,000 – 20 percent – within a few years,” says Shri Ganeshram, CEO of real estate website Awning. “This would allow you to purchase a home in the $500,000 range.”
How much do you have to make a year to afford a $650000 house? ›
Based on the current average for a down payment, and the current U.S. average interest rate on a 30-year fixed mortgage you would need to be earning $126,479 per year before taxes to be able to afford a $650,000 home.
How much is a downpayment on a 350k house? ›
A 10% down payment on a $350,000 home would be $35,000. When applying for a mortgage to buy a house, the down payment is your contribution toward the purchase and represents your initial ownership stake in the home. The mortgage lender provides the rest of the money to buy the property.
To finance a 450k mortgage, you'll need to earn roughly $135,000 – $140,000 each year. We calculated the amount of money you'll need for a 450k mortgage based on a payment of 24% of your monthly income. Your monthly income should be around $11,500 in your instance. A 450k mortgage has a monthly payment of $2,769.
What is a good credit score to buy a house? ›
It's recommended you have a credit score of 620 or higher when you apply for a conventional loan. If your score is below 620, lenders either won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly payments.
What is the 20% down payment on a $300 000 house? ›
Down payment options for a $300K house
However, if you have a down payment of 20% ($60,000), you could potentially save a substantial amount on mortgage insurance and interest charges. The key lies in choosing the down payment amount that aligns best with your circ*mstances.
How much is a monthly payment on a 300K house? ›
On a $300,000 mortgage with a 3% APR, you'd pay $2,071.74 per month on a 15-year loan and $1,264.81 on a 30-year loan, not including escrow. Escrow costs vary depending on your home's location, insurer, and other details.
How much house can I afford making $100,000? ›
The most common rule for deciding if you can afford a home is the 28 percent one, though many are out there. You should buy a property that won't take anything more than 28 percent of your gross monthly income. For example, if you earned $100,000 a year, it would be no more than $2,333 a month.
What house can you afford with $70000 salary? ›
If you're an aspiring homeowner, you may be asking yourself, “I make $70,000 a year: how much house can I afford?” If you make $70K a year, you can likely afford a home between $290,000 and $360,000*. That's a monthly house payment between $2,000 and $2,500 a month, depending on your personal finances.
What house can I buy with $50,000 salary? ›
What you can afford: With a $50k annual salary, you're earning $4,167 per month before tax. So, according to the 28/36 rule, you should spend no more than $1,167 on your mortgage payment per month, which is 28% of your monthly pre-tax income.
Can I afford a house making 80000 a year? ›
For the couple making $80,000 per year, the Rule of 28 limits their monthly mortgage payments to $1,866. Ideally, you have a down payment of at least 10%, and up to 20%, of your future home's purchase price. Add that amount to your maximum mortgage amount, and you have a good idea of the most you can spend on a home.
How much house can you afford on 175k? ›
A $175,000 salary is equal to $14,583 per month in gross income; 28 percent of that comes to $4,083. So, according to the 28/36 rule, the maximum amount you should spend on housing is $4,083 per month. The 36 part of the rule, the sum you should not surpass in total debt, is 36 percent of $14,583, which is $5,250.
What is the 28 36 rule? ›
The 28/36 rule refers to a common-sense approach used to calculate the amount of debt an individual or household should assume. A household should spend a maximum of 28% of its gross monthly income on total housing expenses according to this rule, and no more than 36% on total debt service.
$100,000 is $50.00 an hour.
$50.00 is the hourly wage a person who earns a $100,000 salary will make if they work 2,000 hours in a year for an average of 40 hours per week, with two weeks of total holidays. We take the annual salary of $100,000 and divide it by 2,000 to get to a $50.00 hourly rate.
How much should I spend on a car if I make $100000? ›
How much car can I afford based on salary?
| Annual salary (pre-tax) | Estimated monthly car payment should not exceed |
|---|
| $75,000 | $625 per month |
| $100,000 | $833 per month |
| $125,000 | $1,042 per month |
| $150,000 | $1,250 per month |
2 more rowsApr 4, 2023
Aim for $150,000-$250,000, but There's a Lot To Consider
Your credit score will affect how much house you can afford, as will any other assets you own, the size of your down payment and many other factors. But you can establish a general range with some basic math.
How much do you need to make to buy a $900000 house? ›
How much do I need to make for a $900,000 house? A $900,000 home, with a 5% interest rate for 30 years and $45,000 (5%) down requires an annual income of $218,403. This estimate is for an individual without other expenses, and your situation may differ.
How much house will $800 a month buy? ›
Hence, you could afford a $120,246.05 loan.
What is a good monthly income for a house? ›
The 28% rule
The 28% mortgage rule states that you should spend 28% or less of your monthly gross income on your mortgage payment (e.g., principal, interest, taxes and insurance). To determine how much you can afford using this rule, multiply your monthly gross income by 28%.
How much is a downpayment on a 2 million dollar house? ›
Most lenders suggest making a down payment of at least 20% at closing. For a $2 million home, that means saving up at least $400,000. Not all lenders require a 20% down payment, and you may be able to get away with 5%-10% (which is still $100,000 - $200,000).
Is 200k a good household income? ›
If you earn a $200,000 salary, you're in the top 10% of earners in the United States.
Is $200 000 a year a good salary? ›
However, $200,000 per year is a high income and would place an individual in the top income bracket in the United States. According to the U.S. Census Bureau, the median household income in the United States in 2021 was $68,703, so earning $200,000 per year would be significantly higher than the median income.
How much house can I afford if I make 250k a year? ›
Multiply Your Annual Income by 2.5 or 3
This was the basic rule of thumb for many years. Simply take your gross income and multiply it by 2.5 or 3 to get the maximum value of the home you can afford.
The lower your down payment, the higher your monthly mortgage payment. “With a $150,000 income, you could potentially save up to $100,000 – 20 percent – within a few years,” says Shri Ganeshram, CEO of real estate website Awning. “This would allow you to purchase a home in the $500,000 range.”
What salary is considered upper class? ›
What salary is considered rich in USA? ›
Based on that figure, an annual income of $500,000 or more would make you rich. The Economic Policy Institute uses a different baseline to determine who constitutes the top 1% and the top 5%. For 2021, you're in the top 1% if you earn $819,324 or more each year. The top 5% of income earners make $335,891 per year.
What percent of Americans make over 250k? ›
The $250,000-plus income bracket roughly represents the top 5% of earners in the country, according to US Census Bureau data.
What salary is middle class? ›
The Pew Research Center defines the middle class as households that earn between two-thirds and double the median U.S. household income, which was $65,000 in 2021, according to the U.S. Census Bureau.21 Using Pew's yardstick, middle income is made up of people who make between $43,350 and $130,000.7 This is a ...
Can I retire at 60 with 200k? ›
Can I retire at 60 with $200k? At 60, you can more easily retire on $200,000, especially if you plan to start taking Social Security at 62. But keep in mind that when you take the earliest Social Security option, you dramatically reduce your monthly payout for the remainder of your life.
What percent of Americans make over 200k? ›
For comparison, the median income for U.S. households overall is under $70,000, with only 10% of households earning more than $200,000, according to SmartAsset. Coastal states like New York and California tend to have the highest earners, while top earners in more rural states like Mississippi and Arkansas make less.
What is the monthly payment on a $1000000 mortgage? ›
A 30-year, $1,000,000 mortgage with a 4% interest rate costs about $4,774 per month — and you could end up paying over $700,000 in interest over the life of the loan. Our goal is to give you the tools and confidence you need to improve your finances.
Can I afford a 200k house on 50k? ›
A person who makes $50,000 a year might be able to afford a house worth anywhere from $180,000 to nearly $300,000. That's because annual salary isn't the only variable that determines your home buying budget. You also have to consider your credit score, current debts, mortgage rates, and many other factors.
How much is a monthly payment on a 300k house? ›
On a $300,000 mortgage with a 3% APR, you'd pay $2,071.74 per month on a 15-year loan and $1,264.81 on a 30-year loan, not including escrow. Escrow costs vary depending on your home's location, insurer, and other details.
How much house can I afford with 40,000 a year? With a $40,000 annual salary, you should be able to afford a home that is between $100,000 and $160,000. The final amount that a bank is willing to offer will depend on your financial history and current credit score.
How much is a monthly payment on a 150k house? ›
For a $150,000, 30-year mortgage with a 4% rate, your basic monthly payment — meaning just principal and interest — should come to $716.12.
