How Much Income To Buy 300k House

How Much Income To Buy 300k House – Edited by Michele Petry Edited by Michele PetryArrow Right Senior Editor, Home Lending Michele Petry is a senior editor for , who leads the site’s real estate content. Connect with Michele Petri on LinkedIn Linkedin Contact Michele Petri via Email Michele Petri

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How Much Income To Buy 300k House

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What Percentage Of American Households Make Over 300k?

If you’re making $100,000 a year, congratulations on entering six-figure salary territory. However, if you are an aspiring home owner, even this princely sum may not seem like enough.

A recent PYMNTS/LendingClub survey found that 49 percent of people making $100,000 or more are still living paycheck to paycheck. That’s despite the fact that $100,000 is a good salary, significantly higher than the national median household income of $70,784, according to the latest Census data.

Between recent high inflation and skyrocketing mortgage rates, buying a home can seem like a difficult goal to achieve, even with an income of $100,000. But it is not impossible. Here are some considerations to help you determine how much house you can afford.

As a basis for your budget, aim to follow the 28/36 rule. This commonly used guideline states that you should spend no more than 28 percent of your income on housing costs and no more than 36 percent on total debt payments.

Sra: Suburban Realtors Alliance

If you earn $100,000 a year, your average monthly (gross) income is $8,333. So your mortgage payment should be $2,333 or less. Then, the rest of your debt—car payment, student loans, credit cards, and any other balances you’re working to pay off—should be no more than another $667 a month. So the 36 percent in the equation should not be more than $3,000.

However, you’ll also need to consider a wide variety of other variables, including how much money is in your savings account and how much you’ll pay for homeowners insurance and property taxes.

Let’s say you put a 20 percent down payment on a $400,000 house and take out a 30-year fixed mortgage with an interest rate of 6.5 percent. According to the mortgage calculator, that would make your monthly principal and interest payments $2,022. That gives you some wiggle room to factor in property taxes, insurance premiums and other monthly fees to stay under the 28 percent target of $2,333. So yes, you should hypothetically be able to afford a $400,000 home. However, $500,000 would push it—the same home loan at that price would equal $2,528 in monthly principal and interest payments, exceeding your $2,333 limit.

Your salary is not the only thing that decides your purchasing power. Be sure to consider these other major factors to get a sense of how much you’ll be able to borrow to buy a home.

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Your credit score is a key part of your mortgage application. Low credit scores translate into higher interest rates – which will eat into your purchasing power. The mortgage calculator shows that the monthly payment on a $320,000 loan with an interest rate of 7 percent is more than $200 higher than the same loan at 6 percent. So a higher credit score will equate to a more competitive interest rate on your loan, and therefore a lower monthly mortgage bill.

“Before banks or other mortgage lenders give you a loan, they’re going to look at the overall picture of your financial life,” says Will Hendricks-Griffin, Chicago-based senior vice president at PNC Bank. “Lenders want to see how well you manage your current debt. Do you pay your bills on time? Are you overspending on your credit card? It is important for lenders to see that you are not overburdening yourself financially by adding a mortgage payment to your personal finances.”

Lenders will also evaluate your overall debt-to-income ratio – 36 in the 28/36 rule. Some lenders will allow up to 50 percent DTI, but they will view higher levels of outstanding debt—especially on high-interest credit cards—as a signal of a higher-risk borrower.

“In addition to your credit score and income, lenders will look into your employment history,” Hendricks-Griffin adds. “It is equally important to demonstrate that you have a stable, reliable, long-term employment history. This shows the lender that there is a high probability that you will be employed in the future.”

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How much of your $100,000 salary did you manage to put into savings? Shifting your money to a high-yield savings account can help speed up your savings efforts.

Savings are very important, because the more money you can put up front, the less money you will need to borrow. If you can afford to make a substantial down payment, it lowers your loan-to-value ratio, which is the size of your loan amount divided by the value of the property you want to buy. Lenders prefer to see an 80/20 LTV, which requires a 20 percent down payment. So for a $400,000 home, you’ll need to put $80,000 down and still have enough to cover closing costs.

If you can’t make a 20 percent down payment, that’s okay. Many types of loans can be obtained for much less. However, this will likely mean paying for private mortgage insurance, which will add to your monthly payments.

Do you absolutely have to live in the big city, where the cost of living is high? Your dollars will go much further in cheaper markets than in, say, New York or San Francisco.

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Additionally, remember that this home purchase does not have to be your forever home. If you simply want to stop renting, consider a starter home that can serve you for at least the next five years. It may not be the right property for you

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