The Nest

NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

How Much House Can I Afford on 100K Salary?

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A $100K salary allows for a $350K to $500K house, following the 28% rule. Monthly home expenses would be around $2,300 with a down payment of 5% to 20%. The affordability of the house will vary based on financial factors and credit scores. If you earn $100,000 annually, congrats on entering the six-figure salary territory. However, it may not seem sufficient if you aspire to own a home. How much can I Afford 100K Salary?According to a recent survey by PYMNTS and LendingClub, almost half of those earning $100,000 live paycheck to paycheck. Current economic trends have made big-ticket item purchases difficult, with high inflation and mortgage rates doubling since the start of 2022. Achieving the goal of buying a house on a $100,000 income can seem daunting.Achieving the goal of buying a house is challenging but not unattainable. Consider the following factors to determine your affordability.

Start with the 28/36 rule.

To create a budget, follow the 28/36 rule: spend no more than 28% of your Income on housing expenses and 36% on total debt payments.If you earn $100,000 per year, your gross monthly income is $8,333. Your mortgage payment should be $2,333 or less, and the rest of your debts, including car payments, student loans, personal loans, creditHow Much House Can I Afford on 100K Salary? cards, and any other balances, should not exceed $667 per month. Therefore, the 36 percent in the equation should not exceed $3,000.Buying a house involves considering various factors such as savings, insurance, taxes, loan repayment period, and other debts. Use Bankrate’s New Home Calculator to make informed decisions. For instance, if you make a $20,000 down payment, you can afford a $409,000 home with a 30-year mortgage at 6% interest.

Certain factors can impact the amount of house you can afford on a $100,000 annual salary.

  1. Savings
  2. Current Expenses
  3. Credit Score
  4. Length of Employment
  5. Interest Rates

1. Savings

Your savings must be taken into consideration when determining what you can afford. You must put down a minimum of 5-20% and ensure you can cover the closing costs.The loan size you can receive is directly tied to your available savings. Have you saved any of your $100,000 annual salary? A larger down payment will lower your loan-to-value ratio, which is the amount of your loan divided by the property value.Lenders prefer an 80/20 LTV with a 20% down payment. To buy a $400,000 home, you need $80,000 for the down payment and closing costs. Consider how different down payments will affect costs on a $450,000 house:
Down paymentMonthly Payment
$90,000 (20 percent)$2,158
$45,000 (10 percent)$2,428
$13,500 (3 percent)$2,617
Based on your $100,000 salary, you must put down 20% to follow the 28/36 rule. Alternatively, you could look for a more affordable home. Note that other expenses like property taxes and homeowners insurance are not considered in this example, which may affect your overall budget.If you don’t have enough money for a 20% down payment on a home, don’t worry. You can still purchase a home with as little as 3% of the home’s purchase price in your bank account.Remember to budget for private mortgage insurance (PMI) premiums, which can add hundreds of dollars to your monthly payments. For example, if you put a 5% down payment on a $450,000 home, you would need to pay a $410 PMI monthly fee, according to Freddie Mac estimates.

2. Current Expenses

You must take into account your current expenses when seeking a mortgage. These expenses include car payments, insurance, student loans, child support, alimony, credit card bills, medical debt, and recurring monthly fees.

To enhance affordability, keep your monthly expenses minimum and remember your financial obligations.

3. Credit Score

Your credit score, a.k.a FICO score, affects the loan type and amount you qualify for. Conventional loans require a score of at least 680, while other programs are more lenient. The payment history is pulled from the borrower’s social security number. Credit scores range from 350 to 800.How much Credit you can obtain depends on the length and history of your Credit and your credit score. A higher score means a lower interest rate and the ability to afford more expensive homes. However, if your credit history is shorter, you may be approved for a smaller amount, even if your score is good.

4. Length of Employment

The length of your employment history will impact how much money a bank is willing to lend you. For example, someone who has just started a job will likely be approved for a lower loan amount than someone who has worked for 25 years.

Lenders want to see a long employment history to decrease default risk.

5. Interest Rates

The interest rates are the final factor that decides how much house one can afford. Most 30-year mortgages have an interest rate ranging between 5.5% to 6%. If the rates drop to the 2021 levels, the mortgages would become cheaper, and the buying power would increase.For example, a decrease of 1% in interest rates would increase buying power by about 10%. So a drop in interest rates is a boost for buyers, and when the FED raised interest rates, it affected them negatively.

The 28% Rule For 100K Salaries

Experts suggest using the 28% rule for home budgeting. Your housing expenses should not exceed 28% of your monthly Income. For example, if you earn $100,000 a year, you should not spend more than $2,333.33 on housing expenses (28% of $8,333.33).

Remember to factor in expenses like taxes, insurance, and homeowner’s association fees when applying for a loan.

$100,000 Salary House Affordability Examples

  1. Low Credit + Higher Interest Rate
  2. Good Credit + Average Interest Rate
  3. Great Credit + Low-Interest Rate

1. Low Credit + Higher Interest Rate

Here is an example of a borrower with a lower credit score and less money saved for a down payment. In this scenario, the borrower would likely opt for an FHA loan that requires a 5% down payment. Based on the information provided, this borrower’s loan profile could potentially appear as follows:

  • Annual Income: $100,000
  • Credit Score: 645
  • Down payment: 5%
  • Interest Rate: 6.882%
  • Max Loan Amount: $284,500
The borrower can afford a maximum of $284,500 at 6.882% interest, resulting in a monthly payment of $1777 plus $555 in taxes and fees, for a total of $2,332 per month to stay within the 28% rule.

2. Good Credit + Average Interest Rate

Here is an example of a borrower with a good credit score and significant savings for a down payment.
  • Annual Income: $100,000
  • Credit Score: 700
  • Down payment: 15%
  • Interest rate: 5.809%
  • Max Loan Amount: $358,600
The borrower’s maximum affordable monthly payment, including mortgage, taxes, and fees, is $2,333 based on the 28% rule and a mortgage payment of $1790.

3. Great Credit + Low-Interest Rate

Now let’s consider a borrower with excellent qualifications and sufficient funds to make the full down payment. In such a scenario, the loan profile would appear as follows:
  • Annual Income: $100,000
  • Credit Score: 750
  • Down payment: 20%
  • Interest Rate: 5.584%
  • Max Loan Amount: $394,200.

This borrower can afford a maximum of $394,200, resulting in a monthly payment of $1,807 plus an additional $526 in taxes and fees for a total of $2,333 while staying within the 28% rule. However, these are only rough estimates, and your actual rate can vary significantly based on your debt, employment history, and other factors.

However, borrowers with the same annual income can receive vastly different loan amounts.

How Much Can You Afford On 100k Bottom Line?

Your financial situation dictates the value of homes you can afford with a 100k salary. Generally, a mortgage between $350,000 to $500,000 is feasible. However, a person with low Credit might only qualify for a $300,000 mortgage, while someone with excellent credit might qualify for a $500,000 mortgage.

Written By: Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.

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