How Much House Can I Afford On $50K?

Buying a home can be an exciting, yet challenging process. Finding the right real estate agent, finding the right lender, finding the right house, signing a mountain of paperwork, and moving are just a few of the many steps you’ll need to take. In addition, the hard truth is that buying a home can be even more challenging when you’re on a fixed budget.

However, you might be able to afford a home on $50K a year. After all, successfully purchasing a home isn’t just about your income. There are many other factors and opportunities for assistance to consider.

The Answer: The Amount Of House You Can Afford On $50K A Year

While the average salary considered necessary to comfortably buy a house is just over $100K, the reality is that how much house you can afford depends on more than just your income. Other factors like your credit score, your broader financial situation, and of course the current conditions of your local real estate market come into play. That said, there are some general rules that can help you do some quick math to get a general range on how much house you can afford on $50K a year.

Estimating How Much House You Can Afford On A $50K Salary

Two easy ways to get a sense of what you can afford are to use the “28% rule” and to do a mortgage breakdown using an online home affordability calculator. It’s not an exact representation of the final financial picture for your home buying journey, but it’s a good place to start.

The 28% Rule

Though there are many data points to consider, the percentage of income for your mortgage is one of the best. Many mortgage lenders and other financial experts recommend using no more than 28% of your income for buying your home. That means if you make $50,000 a year ($4,167 a month) you shouldn't spend more than $14,000 a year ($1,167 a month) on your home.

Mortgage Breakdown On A $50K Salary

So, now that you have a general idea of what you should spend a month on your home, how can you calculate how much house you can afford on $50K? It’s easy with this Home Affordability Calculator! Simply input your purchase location, income, debt, cash you can contribute for a down payment, and credit profile and the calculator will show you what you can afford.

Here are two mortgage breakdown examples, assuming you have a 30-year fixed rate mortgage, that demonstrate how much house you can afford rounded to the nearest hundred.

Scenario 1:

• 6.5% interest rate
• $25,000 down payment
• Maximum monthly payment on a $50K salary: $1,167
• Property taxes and insurance: $250 / month
• Monthly principal and interest payment: $917
• Maximum mortgage amount: $184,500.00
• Maximum house value you can afford: $209,500.00

Scenario 2:

• 7.5% interest rate
• $20,000 down payment
• Maximum monthly payment on a $60K salary: $1,167
• Property taxes and insurance: $250 / month
• Monthly principal and interest payment: $917
• Maximum mortgage amount: $166,800.00
• Maximum house value you can afford: $186,800.00

Keep in mind these are only rough estimates. A variety of factors will affect your exact monthly payment and how much house value you can afford. Your specific credit score, monthly debt, and the location of your new home are just a few of the many factors that could bring these estimates up or down.

It’s a good idea to talk to your lender about your specific financial situation so they can create an accurate estimate of how much house you can afford. You should do this before you start house shopping. Otherwise, you might fall in love with a home you can’t afford or settle for one you don't love because you thought it was out of your price range.

Factors That Impact How Much House You Can Afford

As previously mentioned, income isn't the only factor when it comes to how much house you can afford. Here is a look at some other key metrics:

Credit Score

The credit score you need to buy a house varies, but usually the higher your score, the more house you can buy. In general, the minimum score to buy a home is 620. However, some government-backed loans, like an FHA loan (more on these later), have a lower minimum.

Down Payment

“What is a down payment?,” you might ask. This is the amount of cash you put toward the purchase price when you close on your home. The more you bring to the closing table, the less you will need to borrow in the form of your mortgage. This amount can vary greatly depending on your type of loan and a myriad of other factors. Beware of the “down payment myth” that you always need to put down 20% of the home cost as a down payment. In many scenarios, this isn't true and you can put down far less.

Closing Costs

In addition to your down payment, there are a number of other fees you will need to pay as closing costs when you finalize the purchase of your home. These include title fees, attorney fees, escrow fees, and broker fees, just to name a few. Work with your lender, real estate agent, and title company to get a clear picture of your closing costs early in the home buying process.

Debt-To-Income Ratio

Your debt-to-income ratio (DTI) is a measure of how much money you make compared to how much you owe and is a critical factor in determining how much house you can afford. DTI is broken down into two categories: front-end DTI and back-end DTI. Front-end DTI refers to your housing expenses (mortgage or rent, property taxes, HOA fees, etc.) and back-end DTI adds on other required debt payments on your credit report (auto loans, credit cards, personal loans, student debt, etc.). Lenders are typically more interested in your back-end DTI, since it provides a more complete financial picture.

Current Interest Rates

Interest is essentially the amount you pay to borrow the money to purchase your home in the form of a mortgage. As you might imagine, the amount of interest you will pay monthly and over the course of your loan has a big impact on what you can afford. For example, the difference between a 6% interest and a 7% interest (1%) is equal to $2,000 for a $200,000 home.

Mortgage Terms

Understanding how to lower your mortgage payment starts with understanding all the various terms of your mortgage. Be sure to have your lender explain this in detail. Some key terms to consider are the length of your loan, the interest rate, and whether that rate is fixed or variable, just to name a few.

Location And Amenities

Where you buy and the additional amenities offered can greatly affect your housing costs. Monthly HOA fees for condos with a pool/gym etc. can be costly. House shopping in a desirable “hot” neighborhood can increase your sale price. In addition, taxes vary by each municipality. Certain parts of the country are also significantly more expensive than others.

Maintenance And Repairs

Shopping for a home is pretty fun. Keeping that home running year to year is a little less enjoyable. Make sure you budget for things like furnace and AC repairs, a new roof every 25 years or so, and other home maintenance and repairs. Figure at least 1% of the value of your home per year for these types of expenses.

Taxes And Insurance

Your lender and title company can estimate how much you will need to pay each month in taxes and to keep your home insured. Both taxes and insurance can be higher or lower than average spending on where you call home.

What If I Can’t Afford A House On A $50K Salary?

If the math just isn't adding up when it comes to purchasing a suitable house on a $50K salary, there is still some hope for you to be able to buy a home. Here are a few ways you can increase your chances of affording a house on a $50K salary.

Tips To Afford A House On $50K A Year

• Improve your credit score: There are a number of ways to improve your credit score and improve your chances of affording more house. A few examples include reducing your credit card spending, considering a debt consolidation loan, or checking your credit report to find any errors.
• Pay down current debt: If you can swing it, paying down debt will improve your DTI, your credit score, and your likelihood to get pre-approved for the loan amount you need to buy the house you want.
• Search in more affordable areas: Sometimes when you can’t increase your budget, you might need to lower your home buying cost. Consider more affordable, up and coming areas that are likely to increase in value over time. Your real estate agent can help you find the right spots.
• Save for your down payment: The more you put down, the less you need to borrow. Waiting to buy a home until you have a considerable down payment to lay down will increase the amount of house you can afford. You can also look into down payment assistance programs in your area.
• Consider your loan options: An FHA loan, backed by the Federal Housing Administration (FHA), offers more flexibility than most home loans. This includes a 3.5 percent minimum down payment, a lower credit score minimum, and other flexible borrowing terms. If you’re eligible for a VA loan through the U.S. Department of Veterans Affairs, you can potentially have low interest rates, no down payment, and more leniency when it comes to your credit score and DTI.
• Get preapproved for a home loan: Starting the preapproval process with a lender is the best way to get a clear financial picture of what you can afford now and what you can do to afford more in the future.

Down Payment Assistance Programs

The Bottom Line: Home Affordability Is Within Reach