How Much House Can You Afford On $100K?

A home is a big investment, but if you have a salary in the six-figure range you’re already off a pretty good start. As long as you have manageable debt, it’s a decent bet that you can find something that meets your needs.

The Answer: $294,633 – $425,642*

If you’re given a hypothetical on home price ranges, it’s based on assumptions, hence the asterisk above. You can afford between $294,633 – $425,642, but you should know the scenario. With a $100,000 salary, we had $30,000 for down payment and closing costs and $600 in monthly debts before the mortgage with a 720+ credit score.

The interest rate here is around 6.99% with a 30-year term. The closing costs are 2.9% of the loan amount and affordability includes a $67 monthly homeowners insurance premium along with an assumption for property taxes. This is a suburb of Chicago.

Of course, affordability is highly variable based on where you’re looking to purchase, your debt-to-income ratio (DTI), how much you have saved and your credit score.

Estimating How Much House You Can Afford With $100K

The best way to get an estimate of how much home you can afford without going through with an actual preapproval is to use a Home Affordability Calculator. But the problem with any calculator is that it doesn’t account for your comfort level and how you like to budget. Even a preapproval will show you the top end of what you can afford.

But you want room for emergency funds as well as the things that make life fun, so you don’t want all your resources tied up in your house payment. Here are some general rules to decide how much home you can afford.

The 28% Rule

One of the basic rules used by many experts to give a guideline on how much you can afford when buying a home is that the mortgage payment should comprise no more than 28% of your monthly income before taxes. Based on this, on a $100,000 salary, your mortgage payment should be no more than $2,333.33 per month.

The 28% rule is often combined with a rule that says no more than 36% of your monthly income should go toward all of your debt payments, including your mortgage.

Mortgage Breakdown On A $100K Salary

We’ve gone over what buying the mortgage on $100,000 looks like in one specific scenario, but what happens if we change up some numbers based on your situation?

While leaving the interest rate the same at 6.99%, we’ve changed factors like the debt being brought into the transaction and the cash you have to buy. If interest rates: lower or higher, you would obviously be able to afford more or less. But it’s not really possible to time the market. Beyond your personal qualifications, rates aren’t in your control.

Can I Afford A $400K-$500K House?

It’s much easier to determine how much you can afford if you know the price of the house and then you can work backward. For this formula, there’s a way to calculate how much salary you would need to afford a house at any given price. For this, you need to know four things:

• Home price
• Monthly payment
• DTI expected by the lender
• Monthly debts outside your mortgage

You can get to the monthly payment by putting the home price, your interest rate and down payment into any mortgage calculator. The formula we used doesn’t include taxes and insurance, but you can add them in if you know them.

Here’s the formula for minimum salary:

(Monthly Payment ÷ DTI + Existing Monthly Debts) × 12

For the home price, we’ll run the calculation at both $400,000 and $500,000. Let’s keep going with an interest rate of 6.99%. Lenders have different requirements, but because we’d been using 36% as an affordability benchmark, we’ll keep rolling with that. Assume $600 in existing debts. When you do that, here’s how the math comes out:

Based on the assumptions above, you would be able to afford a $400,000 home in any of the usual down payment scenarios. Let’s see what happens if we want a $500,000 home:

As you can see, the only way to afford a $500,000 home on a 36% DTI with the rest of the assumptions above is to make a 20% down payment. Actual lender DTI guidelines are going to vary, but always be mindful of your own budget.

Factors That Determine How Much House You Can Afford

So we’ve seen the math, but the reality is that several factors determine how much house you can afford.

Credit Score

Credit score impacts not only your interest rate, but which loan options you qualify for. The biggest reason loan options matter is the impact they have on DTI guidelines for lenders. The maximum DTI you can qualify with directly impacts your monthly payment.

Down Payment

In addition to being one of the biggest determinants of your interest rate, the bigger your down payment, the lower your monthly payment which has a tremendous impact on the house you can afford.

Closing Costs

Closing costs have to be accounted for along with the down payment, so it can be another upfront cost that eats into your cash to buy. These can be anywhere from 2% – 5% of the purchase price. But there are ways to bring that down:

• Seller concessions: When you’re working on your purchase agreement with the seller, you can negotiate with them to have them cover part of your closing costs. You may find that it’s typical for the seller to pay for certain things in your area. Discuss practices in the local market with your real estate agent if you have one.
• Lender credits: When you take a lender credit toward closing costs, your lender agrees to pay all or a portion of these fees in exchange for you taking a higher mortgage rate. Instead of paying them upfront, you’re building the costs into the loan.

Debt-To-Income Ratio

Your debt-to-income ratio refers to how much of your monthly income before taxes goes toward making your debt payments. The lower this number is as a percentage of your income, the higher the mortgage amount a lender will qualify you for.

Once the mortgage payment is added back in, you’ll qualify for the most loan options with a DTI of 43% or less. However, there’s some flexibility in DTI when it comes to FHA and VA loans if your credit score is high enough.

Current Interest Rates

Mortgage rates also play a large role in how much you can afford. Higher rates eat into your affordability, while lower rates will boost it. You’ll get the lowest possible mortgage rate you can in the current market by maintaining a high credit score and making a sizable down payment.

One thing you shouldn’t try to do is time the market. Interest rates are going to fluctuate based on a variety of economic factors. But it’s beyond your control.

Realistically, the right time to buy is whenever you’re ready. If you’re comfortable with the payment, move forward. You may be able to refinance later if rates drop and you’ve been maintaining good credit habits.

Mortgage Terms

When calculating affordability, mortgage lenders are always going to use the longest term possible. More time to pay off the loan means a lower monthly payment. The trade-off is that you’ll pay more interest relative to shorter terms.

Location And Amenities

Certain areas are more expensive than others. The most visible examples of this are coastal cities like New York and San Francisco where a land crunch means that real estate is more expensive than where there’s more plentiful building territory in the Midwest.

But even going between neighborhoods in individual cities can affect price greatly. It’s not just the city that matters, but the schools, hospitals, distance to work, entertainment and recreation.

Maintenance And Repairs

No matter how well constructed something is, nothing lasts forever. You’ll have to do routine maintenance and make repairs eventually. Depending on the age and the condition of the home, we recommend saving 1% – 3% of the purchase price per year for upkeep.

Taxes And Insurance

Property taxes fund local services like public schools, road repair and garbage collection. Property taxes are going to vary quite a bit depending on where you live. Tax rates are assessed based on the will of local voters in most cases.

You’ll also have homeowners insurance to pay for. Homeowners insurance covers you in the event of property damage, personal property theft and an accident on your property, based on the options you select. Lenders require you to have at least enough coverage to rebuild or replace your home for as long as you have a mortgage.

Finally, if you make it down payment of less than 20% or have an FHA or USDA loan, you’ll have to pay mortgage insurance for as long as the life of the loan depending on the loan type and the size of your down payment.

Knowing Your Mortgage Options

Those making $100,000 per year aren’t limited to a particular type of mortgage. Let’s run through what’s available.

Loan Types

There are really five major loan types:

• Conventional loan: Conventional loans are backed by private investors. However, lenders are often referring to conforming loans backed by Fannie Mae or Freddie Mac. For a primary residence, the down payment requirement is 3% – 5% depending on a few factors. You can also use a conventional loan to buy a vacation home or investment property.
• FHA loan: In order to qualify with most lenders, you need to put 3.5% down and have a minimum of a 580 credit score. It’s worth noting that you can have a slightly higher DTI and qualify for a higher payment with a score of 620 or better.
• VA loan: As a benefit for those currently serving or who have served our country, the VA loan allows eligible clients to take advantage of a home loan that usually doesn’t have a down payment requirement. Although the VA doesn’t set a minimum credit score, lenders usually do. At Rocket Mortgage^®, this is 580.
• USDA loan: A USDA loan is a no-down payment mortgage available for those in eligible rural areas. You and your family can’t make more than 115% of the median income where you’re looking to buy. There’s no minimum credit score, but it’s typically harder to get approved under 640. We don’t offer USDA loans at this time.
• Jumbo loan: A jumbo loan is one that allows higher loan amounts than conforming loan limits permit. Rocket Mortgage offers Jumbo Smart loans up to $3 million. Qualifying credit scores start at 680 and down payments at 10.01% depending on the size of your loan. Speak to a Home Loan Expert for more details.

First-Time Home Buyer Programs

There are various programs that may be available to first-time home buyers either through lenders or options available in your local area. But before we dive deep on those, let’s discuss the definition because it’s a bit more nuanced than most people think. A first-time home buyer is someone who hasn’t had ownership interest in a home in the last 3 years. There are a couple of exceptions to this:

• Displaced homemakers or single parents who had no other ownership interest in a property other than one with their former spouse are first-time buyers.
• Your also considered a first-time buyer by the FHA if you only previously owned a home not in compliance with building codes and it’s not feasible to fix it for less than the cost of constructing a new home.

There are a couple of different types of options available to first-time buyers:

• Conventional loans: If you’re a first-time home buyer, you can get a conventional loan with as little as 3% down, regardless of income. As a repeat buyer, you would have to make 80% or less of the area median where you’re looking to buy.
• Down payment assistance: Many down payment assistance programs require you to be a first-time home buyer. This assistance can come in the form of grants, forgivable or deferred loans or loans where the payments begin immediately.

The Bottom Line: A $100K Salary Can Buy A Good House

If you’re making $100,000 a year, you’re in good shape to find a home that works in your price range in many areas across the country. The important thing is to make sure that you’ve analyzed your budget and taken all factors into account. Down payment and monthly payment come immediately to mind, but don’t forget closing costs.