Earning six figures is nothing to sneeze at. If you make $160,000 a year and you’re looking to buy a home, you’re likely to have more options than many other folks — the median household income in the U.S. is less than half of that at $74,580 a year, according to U.S. Census data.
Finding a home you can comfortably afford that meets your needs isn’t always easy, though, no matter how much you earn. Here’s how to determine how much house you can afford on a $160K salary, without stretching yourself too thin.
The 28/36 rule
The 28/36 rule, which suggests that you shouldn’t spend more than 28 percent of your gross monthly income on housing costs, is a good starting point. The 36 percent part is how much of your income goes to all your debt in total, including housing and also things like student loans and credit card bills.
This is more of a guideline than a hard-and-fast rule, but it’s a useful method to help you figure out how much you can afford to spend on a home while still being able to meet your other financial obligations. Many lenders do take it into consideration when reviewing mortgage applications.
How much house can you afford?
When using the 28/36 rule, start by dividing your salary by 12 to come up with a monthly figure, and then multiply that figure by 0.28 to get 28 percent. Here’s how it breaks down with your $160,000 salary:
$13,333 x 0.28 = $3,733 (the most you should spend on housing costs each month)
$13,333 x 0.36 = $4,800 (the most you should spend on total debt each month)
Bankrate’s mortgage calculator can help you figure out how that $3,733 monthly payment translates into an actual home price. Assuming a 20 percent down payment and a 7.5 percent interest rate on a 30-year mortgage, the monthly principal and interest payment on a $600,000 home would come to $3,356. That gives you a cushion of about $377 to account for property taxes and homeowners insurance premiums, which will vary based on your location, before you hit the $3,733 maximum.
So your $160,000 salary will afford you a $600,000 home — hypothetically. Keep in mind that these calculations do not include your down payment or closing costs.
Here are some other things to consider while you budget:
Your credit score: Those with the highest credit scores will qualify for the lowest interest rates.
Your debt-to-income ratio: DTI is a measure of your debt as compared to your income — how much money is coming in vs how much is going out, so to speak.
Your down payment amount: A typical 20 percent down payment on $600,000 comes to $120,000, a hefty amount to have to pay upfront. Many loans have lower down payment requirements, but the more you pay upfront, the less you have to borrow. That means lower monthly payments and less interest to pay. Putting down a full 20 percent also lets you avoid having to pay extra for private mortgage insurance.
Your desired location: Different areas have different housing markets, and your $600,000 budget will go a lot farther in some areas than others. In Miami, for example, the median home price is $580,000, according to September Redfin data. So your budget will get you something very close to the middle of the market there. In a pricier city like San Diego, where the median price is $890,000, it won’t stretch nearly as far, but in a more affordable one like Indianapolis, where the median is just $235,000, you might wind up with something like a mansion.
Home financing options
Even with your high salary, you probably don’t have $600,000 in cash burning a hole in your pocket. There are several financing options you can explore when buying a home.
Different types of loans
Many types of mortgage products can help you make this high-ticket purchase. Most options have minimum credit score and down payment requirements. FHA loans, insured by the Federal Housing Administration, have more flexible requirements than conventional loans, but with a $160,000 salary, a conventional loan is likely your best bet. The higher your credit score, the better terms you’ll qualify for. And if you’re an active or retired military service member, look into a VA loan, which may require no down payment at all.
First-time homebuyer programs
Assistance programs exist at local, state and federal levels to help buyers meet the rigorous financial demands of homeownership. Qualified first-time buyers may be eligible for grants or special loans to help them cover down payment and closing costs — however, these programs typically have income limits, and your high salary may mean you don’t qualify.
Get preapproved for a mortgage
A preapproval letter from a lender is an important tool to have in your arsenal. Getting preapproved for a mortgage tells you how much a lender is likely to loan you, which can be crucial when setting your budget and narrowing down which listings are in your price range. If you’re looking in a very competitive market, it can also give you an edge over other buyers who are not preapproved. Shop around for lenders based on interest rates, fees and other services — but remember that, when you’re ready to buy, you’re not obligated to go with the same lender that preapproved you.
Ready to jump into the market and see how much house you can afford on your $160,000 salary in your area? Be sure to have a local real estate agent at your side to guide the way. An agent that knows the area you’re looking in well can help you find the options that best meet your needs — and your budget.
Buying a home is one of the most expensive purchases you’re bound to make in your life. That’s why it’s so important to get the right mortgage before you sign on the dotted line.
A few differences in mortgage rates or other terms can equate to tens of thousands of dollars either spent or saved. But with so many options available on the market, it’s hard to know where to start.
There are traditional lenders and online mortgage lenders, local ones and large multinational ones. Plus, many lenders specialize in different types of loans.
To get started, browse some of the best mortgage lenders and find a few that match your needs.
Best Mortgage Lenders & Online Loan Marketplaces of 2023
You have several great options available, from online lenders to brick and mortar branches, from excellent credit to bad credit lenders. Check out the complete list of lenders to find the best choice for your next home loan.
Offering home loans in all 50 states, loanDepot works with a wide range of borrowers. The minimum credit score for most loans is 620. However, some government-insured programs may allow your credit score to be as low as 580.
You also have access to various mortgage options. They provide fixed and adjustable-rate mortgages, jumbo mortgages, FHA loans, VA loans, and home equity loans.
If you want to talk over these choices, you’ll appreciate the online lender’s no steering policy. That means your loan officer doesn’t receive any incentive to point you in any one specific direction, so you can trust the advice you get.
Do keep an eye on your origination fees. Depending on your application, those could cost you anywhere between 1% and 5% of your home’s purchase price.
The first step of applying for a mortgage is talking to a loan officer. However, the application process occurs online. That means you can do the bulk of the work at your convenience.
Read our full review of loanDepot
LendingTree is the best if you want to compare multiple offers as they partner with the largest network of lenders who compete for your business.
You can get up to five different loan offers within minutes of submitting your application. If you’ve already found the place you want to call home, start here.
Another great feature is that you can submit a request online for conventional, FHA, or VA loans. LendingTree’s website also provides many in-depth resources for first-time buyers, regardless of where you are in the process.
They provide tips for qualifying for a mortgage, mistakes to avoid when purchasing a house, and a bank of frequently asked questions. For home loan guidance and receiving multiple offers at once, LendingTree is the place to go.
Read our full review of LendingTree
Rocket Mortgage is a great pick if you prefer applying for a mortgage online and has excellent customer service when needed.
Rocket Mortgage provides FHA loans, USDA loans, and Freddie Mac and Fannie Mae loan products that come with down payments as low as 3%.
A branch of Quicken Loans, Rocket Mortgage’s online application process is highly streamlined with an approval time of just a few minutes. You can also avoid the hassle of paperwork by using a secured platform to share your financial information.
Once you have your proposed interest rate, you can test out different house prices and down payment amounts to create a customized monthly payment. Once you get a contract on your new home, closing is easy and takes place at a location of your choice.
Read our full review of Rocket Mortgage
New American Funding
New American Funding offers conventional, FHA, and VA loans. You can also explore options for a mortgage that includes a home renovation loan.
Less common available loans include jumbo loans, reverse mortgages, and interest-only mortgages.
New American Funding also has first-time homebuyer loan programs available and works with down payment assistance programs in 14 states, including California, Illinois, Florida, and Texas.
Once you have an idea of what you’re looking for, go step-by-step through their questionnaire to get more details on potential loan terms you could qualify for.
Read our full review of New American Funding
Alliant Credit Union
Alliant Credit Union offers both fixed and adjustable-rate mortgages, and you can qualify with a down payment as low as 3% of the home price.
On a $200,000 house, that equates to just $6,000 needed in cash for your down payment.
You can qualify anywhere in the country and enjoy a low origination fee of just $995. If having cash on hand is an issue for you when purchasing a home, check out Alliant to see how they stack up to other mortgage lenders.
Alliant also offers home equity lines of credit.
Read our full review of Alliant Credit Union
Guaranteed Rate originated about $24 billion in mortgages for 2018, which is no surprise. The website allows you to get an idea of your qualifying interest rates easily.
All you need to do is input just a few details about your estimated credit score and the type of home you’d like to buy.
You can then browse several loan options to see your interest rates and APR options. It’s easy to compare mortgage options to get an idea of which kind of mortgage is best for you.
You can also browse their Knowledge Center for tons of in-depth resources on the home buying process.
Read our full review of Guaranteed Rate
First Internet Bank
Solely based online, First Internet Bank is an online mortgage lender that allows you to complete the entire mortgage application from your own home.
However, you can still call to talk to them on the phone whenever you’d like. First Internet Bank also offers a wide range of loans, including conventional, jumbo, FHA, VA, USDA, and home equity loans.
You can get a personalized mortgage rate in less than a minute. You can even sign up for email alerts to track mortgage rates as you shop for houses.
Getting prequalified takes just moments, and you can then submit the appropriate loan documents to get pre-approved. This extra step gives you a leg up on the competition once you’re ready to make an offer on a home.
Read our full review of First Internet Bank
Carrington Mortgage Services
If you have a question about a loan, you can chat with a Carrington representative from 7 a.m. until 6 p.m. PST. They’ve even been featured on Lifetime’s Designing Spaces.
So, it should go without saying that Carrington is available, and they want your business. Peruse their website, and you’ll see how user-friendly it is within moments.
They have a list of mortgage tools that will help you understand what you can afford. They also have a step-by-step guide outlining the loan application process.
Additionally, you’ll find a list of common mortgage terms that banks use, an explanation of loan types, and a mortgage application checklist.
Carrington is a top-notch mortgage company with an intuitive, user-friendly interface and great rates to boot.
Read our full review of Carrington Mortgage Services
Truist has a significant online presence for mortgages in addition to its physical branches throughout the country.
You can create an online account to apply for a mortgage loan or enter your zip code to find a location near you. Truist offers a suite of mortgages on top of the typical government-backed loans, including high-cost home financing.
Alternatively, if you meet certain income eligibility requirements, you may qualify for a HomeReady/Home Possible loan, which can help make homeownership more affordable.
Truist also offers a unique program for doctors to help licensed medical interns, residents, and fellows qualify for a mortgage.
Read our full review of Truist
Prequalify online within minutes, and from there, you can start making intelligent decisions about your future home. U.S. Bank offers conventional, fixed-rate loans, VA loans, ARMs, and FHA loans.
Want to design and build your dream home? They even have new construction loans and investment property loans.
They also have a “loan officer near you” app that lets you speak with someone who’s knowledgeable about your area and what it is specifically you’re looking to purchase.
You can also call their national number directly and someone will speak to you right then and there. U.S. Bank even has a FAQ section that answers questions you didn’t even know you had.
Read our full review of U.S. Bank
Other Top Mortgage Lenders to Consider
Didn’t find one on the list that you liked? Read our reviews of some other good lenders:
How to Find the Best Mortgage Lender
To find the best mortgage lender, it’s wise to compare mortgage rates and terms from multiple lenders. This will help you find a lender that offers the best deal. The lending standards may be similar across lenders, but the way they implement them may vary.
You might be surprised at how much variation you see in your different offers. Plus, mortgage loans can be structured in various ways to accommodate your financial situation or personal preferences.
If you don’t have a lot of spare cash on hand, you may be able to pay a higher interest rate to avoid higher closing costs. If you want to lower your monthly payments, your lender may let you pay for points to qualify for a lower rate.
It’s also helpful to understand where mortgage rates are right now and where they’re headed. A good real estate agent may be able to help you with this as they usually know the market quite well.
Know your credit score and the type of rate you should qualify for so you can negotiate the best deal possible. Some credit card issuers give you your FICO score for free.
How to Compare Mortgage Lenders
Here are some questions you may want to ask when searching for the best mortgage lenders:
How is their customer service?
What can they tell you about their closing costs and other associated lender fees?
How much do you need for a down payment?
How quickly can you close once you find a home?
These are all questions you should pose to at least two or three separate mortgage lenders.
Compare answers and determine which lender can offer you the best financial deal and meet any other expectations you have surrounding the loan process.
What should you look for in a mortgage lender?
Finding the best mortgage lender for your needs can take a while, so give yourself time. If you’re interested in a particular type of loan, such as a VA loan or an FHA loan, make sure the lender actually offers it.
Mortgage Interest Rates
Pick at least two or three mortgage lenders with good customer satisfaction ratings to compare pre-qualification offers. Then, take a look at the interest rates they offer you, whether the rate is fixed or adjustable, and what your monthly mortgage payments will be.
Taxes and Mortgage Insurance
Make sure they include an estimate for taxes and mortgage insurance, not just your principal and interest because that can make your payment increase by at least a couple hundred dollars.
If you live in a more expensive area like a major city, expect to pay even more for property taxes. Of course, you can always refinance to get a lower rate down the road, but it’s expensive because of closing costs.
Fees and Closing Costs
Next, compare the closing fees of each mortgage lender. Some of the expenses won’t change from lender to lender. A title search, for example, will cost about the same amount regardless of what lender you go through. Origination fees, on the other hand, can vary greatly.
Expect to pay 3% to 5% of the loan amount for total closing expenses. Which end of the spectrum you end up on can make a huge difference in how much cash you’ll need.
A good lender will help you explore your options based on how much cash you have and how long you plan to be in the home.
If you have extra money and intend to make your new place your “forever home,” it may be worth paying extra points at closing in exchange for a lower mortgage rate. Ask each lender for different scenarios to see which best fits your individual needs.
How can you get pre-qualified for a mortgage?
There are two ways to start the mortgage process: a pre-qualification and a pre-approval.
Getting prequalified is an informational step to get an idea of what rates to expect and how much you can borrow based on your income and debt levels. You don’t have to supply any documentation at this time.
The quotes you receive are not set in stone and are subject to change with your official application. But it’s good to find out what types of loans you should consider, how much cash you’ll likely need, and what price range of home you should look at.
You’ll need more to actually make an offer on a home because most sellers don’t view a pre-qualification as official enough to indicate likely financing.
What is a pre-approval letter?
A pre-approval letter takes the pre-qualification process one step further. You essentially submit your entire application and all the accompanying documentation.
This includes things like your tax returns from the last two years, bank statements, explanations of any negative remarks on your credit history, and employment verification.
The mortgage lender also performs a hard credit pull to determine your mortgage interest rate. It takes a bit of time, but once you’ve been pre-approved, the lender provides a letter stating how much of a loan you qualify for and how much down payment you can provide.
When you submit an offer on a house, this addition makes it much stronger because the seller knows that you’re likely to get approved for the mortgage. Once your offer is accepted, you can lock in an interest rate with your mortgage lender for a certain number of days.
What type of mortgage should I get?
Some quick introspection is necessary to answer this question. Start by examining your financial position, household needs, and long-term goals. How secure is your income? Where do you want to live in the next few years? How much money can you raise for the down payment?
Answering these questions helps you pick the most appropriate mortgage type for you. Typically, the choice boils down to a conventional or government-backed mortgage. Conventional home loans have stricter requirements, such as a high credit score and sizable down payments. Government-backed loans allow lower credit scores and little to no down payment to qualify.
There are eight different types of mortgages spread across the two categories. Dig in as we explore each of them below.
8 Types of Mortgage Loans
Conventional Mortgage Loans
Conventional mortgages are home loans that the government doesn’t insure and fall into two categories: conforming and non-conforming.
A conforming loan means the loan falls within limits set by the Federal Housing Finance Agency. Non-conforming loans, such as jumbo loans, exceed the FHFA limit, which varies between counties.
Conventional Loan Requirements
Conventional loans have stringent credit score and debt-to-income ratio requirements. Mortgage lenders approve borrowers with a credit score of at least 620 and a 20% down payment. Buyers who can put at least 3% down may also be eligible but must pay primary mortgage insurance.
Cheaper than unconventional loans
Can qualify by putting 3% down
PMI on deposits less than 20%
Strict credit score and DTI ratio requirements
Best for: Buyers with large down payments, high income, stellar credit scores, and excellent credit history.
A fixed-rate mortgage is a home loan that carries a fixed interest rate over its lifespan. Once the interest rate is locked in, it’s not affected by changes in market rates.
Fixed-rate mortgages are the most popular home loans, thanks to their predictability. Knowing your mortgage payment every month helps borrowers more easily plan their finances. As a result, you can be sure that there are no surprises month-to-month.
Fixed-Rate Mortgage Loan Requirements
Lenders use your credit score, debt-to-income ratio, credit history, income, and down payment to determine eligibility and set mortgage rates. Credit scores are a primary determinant, and most mortgage lenders approve borrowers with scores above 620.
Credit scores above 740, low DTI ratio, stellar credit history, and a significant down payment command the most competitive mortgage rates. Conversely, low credit scores lead to higher interest rates, and a down payment of less than 20% triggers the need to pay private mortgage insurance (PMI).
Fixed-rate mortgage terms range from 10 to 30 years, but 30 and 15-years loans are most popular. The length of your mortgage also determines the interest rates and monthly payments.
Predictable monthly payments
Nonfluctuating interest rates
Large tax deductions
Higher mortgage rates
Slow equity growth
As the name suggests, adjustable-rate mortgages carry an adjustable interest rate set by the prevailing market rate. An ARM starts with a fixed interest rate for a few years then changes to a variable rate for the remaining loan term.
An ARM can be locked for one, three, five, seven, or ten years, but 5/1 ARM loans are most common. With a 5/1 ARM, the interest rate is locked for the first five years and then adjusted annually for the remainder of the term.
Typically, the interest rate on an ARM adjusts upwards because the initial interest rate is often lower than the prevailing market rate.
Predictable and low initial monthly payments
You can save a considerable amount of money at first
Increased mortgage rates
Monthly payments can be expensive
Best for: Borrowers who are likely to secure a pay hike in the future but want to lock in lower rates when their income is lower.
An FHA loan is a mortgage guaranteed by the federal government and insured by the Federal Housing Administration (FHA). You can only secure an FHA loan from an FHA-approved lender. The agency insures home loans are issued by accredited lenders such as credit unions, banks, and mortgage companies, protecting mortgage lenders if a borrower defaults on payment.
FHA Loan Requirements
These loans help modest-income households buy a home. You need a 3.5% down payment, a credit score of 580 or higher, and a DTI less than 50 to qualify for an FHA loan. You can be eligible with a 500 credit score if you raise a 10% down payment.
Since the government insures FHA loans, FHA lenders can extend favorable terms to people who wouldn’t otherwise qualify for a mortgage. FHA loans carry a mortgage insurance premium (MIP) for at least 11 years, and FHA mortgages with less than 10% down must carry FHA insurance over the life of the loan.
You can use an FHA to buy or refinance a condo, single-family home, 2 to 4-unit multi-family home, and select manufactured homes. In addition, some FHA loans can finance new construction and home renovation.
The limits on FHA loans vary by county, and as of 2021, you can borrow between $420,860 and $970,800. Your county’s living costs determine the limit on FHA loans.
Requires a 3.5% deposit
High loan limits
Accommodates low credit scores
Mandatory mortgage insurance
Only finances primary residence
Best for: Low and moderate-income households and borrowers without a large down payment.
VA loans are guaranteed by the U.S. Department of Veteran Affairs but issued by private lenders such as mortgage companies, banks, and credit unions. VA loans help veterans, current service members, and eligible spouses buy a home without a down payment.
The government guarantee allows VA accredited lenders to extend favorable terms to borrowers without a deposit. Although VA loans carry attractive terms, they have stringent qualification requirements. Only qualified active-duty service members, veterans, and surviving spouses can apply for VA loans.
VA Loan Requirements
While a VA loan offers 100% financing when buying a home, VA lenders will consider credit score, DTI, and income level when issuing a loan. There are no minimum credit score requirements, but you typically need a credit score of at least 620 to qualify.
In addition, veteran and surviving spouses can only use a VA loan to finance their primary residence. But active-duty service members can use the loan to buy a second home if they plan to move into it within 60 days of closing.
Your county of residence determines the VA loan limit. As of 2021, the county limit on VA loans ranges from $548,250 to $822,375, depending on the cost of living. However, you can get a VA loan that exceeds the county limit if you make a down payment.
No down payment
Competitive mortgage rates
Lower closing costs
No private mortgage insurance
Can’t finance an investment property or vacation home
Carries a VA loan funding fee
Strict property requirement
Best for: Eligible veterans, active-duty service members, and surviving spouses.
USDA loans are zero-down payment government-backed mortgages guaranteed by the U.S. Department to help rural homebuyers. The loans help people with modest incomes who can’t buy homes using traditional mortgages.
USDA home loans are offered under the USDA loan program or USDA Rural Development Guaranteed Housing Loan Program. The program aims to bolster the economy and improve the quality of life for people in rural America. It waives the down payment, offers competitive mortgage interest rates, and is highly accessible.
You can apply to any of the three USDA loan programs, including:
Loan guarantees: The USDA guarantees a mortgage issued by a local lender. That allows you to access a loan with attractive terms without a deposit.
Direct loans: These are subsidized home loans for low and very low-income borrowers with interest rates as low as 1%.
Home improvement loans and grants: These are loans or outright grants to help homeowners upgrade or repair their homes. Some loan packages pair the loan with grants of up to $27,000.
USDA Loan Requirements
Qualifying for a USDA-backed home loan depends on the income and size of your household. The income limits vary by location and depend on your county of residence. Only U.S. citizens or permanent residents can use these loans to finance an owner-occupied primary residence.
You can qualify for a USDA mortgage with a credit score of 640 or higher, a DTI of less than 41%, and if the monthly repayment won’t exceed 29% of your monthly income. The USDA may consider a higher DTI for applicants with credit scores above 680. Applicants with scores lower than 640 may still qualify but are subject to more stringent borrowing conditions.
You also need to demonstrate a dependable income over two years, have a good credit history, and have no account in collection within the last year.
The USDA loan limit is a moving target that varies between counties, based on the cost of living. The loan can be as high as $500,000 in high-cost counties like Hawaii and California and $100,000 in rural America.
You can only access a direct loan from the USDA if your home is less than 2,000 square feet and has a market value below your county loan limit. The USDA program excludes metropolitans but covers some suburbs.
Ultra low fixed interest rates
Includes financial grants
No private mortgage insurance
Finances single owner-occupied residences
Best for: Borrowers with limited financial resources or those wishing to live in rural areas.
Jumbo loans finance homes that exceed the FHFA limits of a conventional mortgage. Jumbo loans are considered non-conforming mortgages and are considered high-risk loans.
Since they exceed the FHFA limits, Freddie Mac and Fannie Mae do not guarantee jumbo loans. That means the mortgage lender may incur losses if the borrower defaults. Jumbo loans can carry an adjustable or fixed interest rate and have strict requirements.
Jumbo Loan Requirements
You need a credit score of 700 to 720, a DTI of less than 45%, and plentiful cash reserves in the bank to qualify for a jumbo loan. Lenders require extensive documentation to show excellent financial standing. You’ll need W-2s, complete tax returns, and 1099s as well as your investment accounts and bank statements.
The minimum down payment on jumbo loans is often higher than traditional loans because they lack a government guarantee. Most mortgage lenders require a 10% to 30% deposit. Jumbo mortgage rates depend on your finances and your lender.
Some lenders charge higher rates on jumbo loans than conforming ones, while others offer lower rates. The closing costs and lender fees on a jumbo loan are often higher because of extra qualifying steps and the high loan amount.
You can use a jumbo loan to buy a home, refinance an existing mortgage for cash-out purposes, or purchase an investment property and land. However, since FHFA doesn’t govern jumbo loans, the loan limit could run into the millions.
Higher loan limits
Can finance investment property
Competitive interest rates
High loan amounts
Requires high credit scores
You need high income
Requires plenty of cash reserves
Best for: People buying expensive property and homeowners looking to refinance a large loan.
Interest-only mortgages are relatively short-term loans, usually structured as ARMs for 5 to 10 years. During the loan, borrowers pay interest on the loan without repaying the principal. Since you’re not paying back any borrowed money, you’re not building equity in the home. Your equity in the house remains the value of the down payment and any appreciation in the home’s market value.
At the end of the loan term, your loan amount remains the same unless you’ve made separate payments to offset the principal. Once the initial term lapses, you can pay off the loan, switch to making amortized payments, refinance, or sign up for another interest-only term.
Interest-Only Mortgage Loan Requirements
An interest-only loan requires a good credit score, 700 or higher, a large deposit, and a low debt ratio. There are no standard requirements, so they vary widely between mortgage lenders. But you’ll need to demonstrate an ability to pay and own ample assets to qualify.
Low initial monthly payment
Low initial mortgage rates
Variable loan terms
You don’t build equity
Your equity declines if property value drops
Best for: People with high disposable income, large cash reserves, rising incomes, or borrowers who receive large annual bonuses.
Best Mortgage Lenders FAQs
Which lenders have the best mortgage rates?
Mortgage rates can vary significantly from lender to lender, and can also fluctuate over time. It’s difficult to say which lender has the “best” mortgage rates at any given time. It can depend on a variety of factors, such as your credit score, the type of loan you’re looking for, and the location of the property you’re buying.
That being said, some lenders may offer more competitive rates than others. One way to find the best mortgage rates is to shop around and compare offers from different lenders. You can do this by visiting the websites of different banks and mortgage companies, or by working with a mortgage broker.
Another important factor to consider when shopping for a mortgage is the fees associated with the loan. Some lenders may have lower rates but charge higher fees, while others may have higher rates but charge lower fees. Make sure to compare the total cost of the loan, including the mortgage rate and fees, when shopping for a mortgage.
How do I get the best mortgage rate?
To get the best mortgage rate, you should:
Have a good credit score. The higher your credit score, the more likely you are to qualify for a low mortgage rate.
Shop around for rates from multiple lenders. Compare rates from banks, credit unions, and online lenders to find the best rate.
Make a large down payment. Putting more money down on the home can lower your mortgage rate.
Consider different loan types. Adjustable-rate mortgages and shorter-term mortgages typically have lower rates than fixed-rate mortgages.
Consider paying “points” or additional fees to lower your rate.
Get Pre-approved for a mortgage before you shop for a house.
Be prepared to provide extensive documentation to the lender to show you can afford the loan and can make the payments.
It’s worth noting that interest rates are not the only thing to consider when shopping around for a mortgage. You should also compare other terms, fees, and loan programs that lenders offers. It’s always a good idea to consult a mortgage expert or a financial advisor for guidance on this matter.
How much house can I afford?
A widely accepted method for determining how much you can afford to spend on a home is the 28/36 rule. This rule states that you should not spend more than 28% of your gross, or pre-tax, monthly income on housing expenses.
Additionally, the rule states that you should not spend more than 36% of your income on all debt payments, including your mortgage, credit cards, and other loans, such as auto and student loans.
For example, if your gross monthly income is $5,000, you should not spend more than $1,400 (28% of $5,000) on housing expenses, including your mortgage payment, property taxes, and insurance. And you should not spend more than $1,800 (36% of $5,000) on all debt payments, including your mortgage, credit cards, and other loans, such as auto and student loans.
So, if you have $500 in existing debt payments, your monthly mortgage payment should not exceed $900.
Whether you’re bringing in $140,000 on your own or that’s your combined household income, you probably feel pretty confident about your homebuying journey. You’re making about double the national median household income, which is $70,784 per the latest Census data, so getting approved for a mortgage and finding homes that fit your budget shouldn’t be too tricky.
Be smart as you shop, though. Earning more makes it easy to spend more — experts call this lifestyle inflation — and if you’re not careful, a hefty monthly mortgage payment could mean your spending outpaces your monthly earnings. Let’s crunch the numbers on how much house you can afford with a $140K salary.
The 28/36 rule
Many financial experts use a fairly simple set of calculations called the 28/36 rule to assess affordability. This guideline breaks down how much of your income should go toward your mortgage and other debts: Per the rule, no more than 28 percent of your gross income should go to your housing payments each month. And no more than 36 percent should be allocated to your total debt, including housing — such as car payments, student loans and credit card bills.
Let’s apply the 28/36 rule to your $140K salary to see how much you should be spending on housing costs:
$140,000 / 12 = $11,667 (gross monthly income)
$11,667 x 0.28 = $3,267 (the most you should spend on housing costs each month)
$11,667 x 0.36 = $4,200 (the most you should spend on total debt each month)
How much house can you afford?
But wait, you might be thinking. I want to know a purchase price, not just how much I should spend on my mortgage payments. Bankrate’s mortgage calculator can help: It shows that if you were to buy a $500,000 home, with a 20 percent down payment and a 30-year loan at 7.5 percent interest, your monthly principal and interest payments would be $2,796. That leaves you a few hundred dollars to cover home insurance premiums and property taxes, which will vary widely depending on your location, before you hit that $3,267 cap.
So hypothetically, you can afford a $500K home. Don’t forget, though, that this does not include your upfront expenditures: a 20 percent down payment on a home of that price is a significant $100,000, plus closing costs.
And these aren’t the only factors to consider before you start house shopping. Here are some other metrics mortgage lenders look at to make sure you’re not overextending yourself:
Credit score: The higher your credit score is, the better the interest rate you can get — which means you’ll pay less in interest. This translates to big savings over the life of the loan, so it’s worth getting your score in the best shape possible before your house-hunt begins.
Debt-to-income ratio: Often called DTI, this metric is similar to the 28/36 rule in that it measures how your debt obligations stack up against your income. If you stay below 36, you should be in good shape, although some lenders allow for a higher DTI.
Down payment: You might have heard that you need to put 20 percent down, but that’s not necessarily true. Some loans require as little as 3 percent for a down payment. However, paying less upfront means borrowing more, and thus bigger monthly payments. And putting down the full 20 percent lets you avoid paying private mortgage insurance on top of your mortgage payment. With your $140K salary, shelling out a bigger down payment just makes sense.
Desired location: In most parts of the country, a $500,000 housing budget will probably get you a spacious single-family home. But in particularly pricey markets, like New York City or the San Francisco Bay Area, it might buy a lot less. Consider general cost of living prices, too, from groceries to transportation to entertainment. Make sure you can afford not just the house, but the lifestyle you want to live.
Home financing options
Even if you’re comfortable spending half a million dollars on a home, you probably don’t have that kind of cash just lying around. That’s where home financing comes in.
Get preapproved for a mortgage
Before you even start house-hunting, it’s smart to get preapproved for a mortgage. Preapproval isn’t final approval, but it tells you the size of the loan you’re likely to get, which helps ensure you don’t waste time looking at homes that don’t fit within your budget. It can also be crucial in competitive markets, where there may be more than one offer on a home — your preapproval lets sellers know you are a serious, qualified buyer.
Different types of loans
There are many different types of mortgages that can help you make that half-million home yours. Most have specific credit-score requirements, and you may not be eligible for some due to your high salary. If you are a military service member or veteran, it’s well worth looking into VA loans, and FHA loans are often popular with first-time buyers and borrowers with poor credit. But with a $140K salary, you’ll probably be looking at a conventional loan. A knowledgeable loan officer or mortgage broker will be able to explore your options with you.
First-time homebuyer programs
Are you transitioning from renter to homeowner for the first time? If so, you might be able to take advantage of first-time homebuyer programs, which can range from grants to low-interest or forgivable loans offering closing cost and down payment assistance. However, many such programs come with a maximum salary cap, so your $140,000 income might make you ineligible.
When you’re ready to jump into the homebuying market, working with an experienced real estate pro in your desired area is your best first step. Local agents know their markets well and will be able to show you home options that match your needs and your budget. Ask for recommendations from friends and family, look at yard signs in the neighborhoods you like and research online to find some good candidates. Then, interview a few people before you choose the right one for you.
Does your dream home have a $700,000 price tag? That’s well above the National Association of Realtors’ median price for a home, which in July 2023 was $406,700. Whether you can afford such a pricey purchase will depend on a variety of factors, including your salary and the interest rate of your mortgage.
Use Bankrate’s mortgage calculator to figure out how much you need to make to afford a $700,000 home:
Assuming a 30-year fixed mortgage and a 20 percent down payment of $140,000, at an interest rate of 6.5 percent, your monthly principal and interest payment would be $3,539. That’s more than $42,000 per year on principal and interest alone.
Round that monthly figure up to around $4,200 to account for property taxes, homeowners insurance and potential HOA fees, all of which vary widely. That makes your total annual housing bill $50,400.
Now apply the common rule of thumb that you shouldn’t spend more than about a third of your income on housing. The $50,400 figure, multiplied by three, comes to $151,200 — that is the minimum salary you’d need in order to afford this home purchase.
To reiterate, these numbers will vary drastically depending on variable factors like your homeowners insurance premium and local property taxes. Your monthly payment will be lower if you snag a lower mortgage rate, higher if it’s higher; and your payment will be higher if you make a down payment of less than 20 percent as well. Here’s a deeper dive into how much income you’d need to afford a $700,000 home.
Income to afford a $700K house
The 28/36 rule is a good starting point when determining what salary you need for a $700,000 home purchase. This real estate rule of thumb recommends that no more than 28 percent of your total monthly income should go toward your monthly housing costs, and that no more than 36 percent go toward overall debt payments (including housing).
Here’s how the rule works for the annual income of $151,200, as determined above. Dividing by 12 for a monthly amount comes to $12,600, and 28 percent of $12,600 is $3,528 — almost exactly equal to the monthly principal and interest figure roughly determined above. But don’t forget that you’ll need to factor in the variable monthly fees that get rolled into your housing payment, such as property taxes and insurance premiums.
As you run the numbers, keep the 36 part of the equation in mind as well. Other monthly debt, like car payments, credit card balances or student loans, can add up, and you don’t want to stretch your budget too thin by exceeding that 36 percent guideline. There are also the ongoing costs of homeownership to stay on top of, such as maintenance and upkeep.
In addition, remember that a $700,000 budget can take you quite far in most areas of the country. According to Redfin data from July 2023, the median sale prices in many major cities are much less — including Washington D.C. ($617,000), Denver ($587,000), Miami ($580,000), Phoenix ($436,824) and Atlanta ($385,000). Just because you can afford to spend $700K doesn’t mean you need t0 (or should).
What factors determine how much you can afford?
As you evaluate how much home you can afford, there are many factors to consider besides the property’s sticker price. Some of the most important include:
Down payment: The larger your down payment on a house, the less you need to borrow — and so, the smaller your monthly mortgage payments will be. This is especially true with higher-priced homes: A 20 percent down payment on a $700,000 home means $140,000 that you won’t have to pay back, with interest.
Loan-to-value ratio: Your down payment will also determine your loan-to-value ratio, or LTV. This figure represents how much of the home’s total value you are borrowing.
Mortgage rate: Higher rates mean more interest to pay. Even one percentage point makes a big difference: The $3,539 monthly payment outlined above for a 6.5 percent interest rate becomes $3,915 at 7.5 percent. That’s $4,512 per year — or more than $135,000 over the life of a 30-year loan.
Credit score: A higher credit score will boost your chances of snagging a lower mortgage rate.
Debt-to-income ratio: DTI is calculated by considering your gross monthly income against your debt obligations each month. The higher your DTI, the more of a risk lenders will likely consider you.
Financing: Before committing to a mortgage loan, do your research and shop around for the various types of financing that you may be eligible for. Many state and local governments also offer down payment assistance and other programs designed to make homeownership more achievable, especially for first-time buyers. Your high salary means you may not qualify, but it’s well worth looking into just in case.
Stay the course until you close
Once you go into contract on a home purchase, it can take weeks or even months before you actually sit down at the closing table. In the interim, don’t stop monitoring the factors listed above. For example, don’t apply for new credit cards or make purchases that require financing, like a car, because those things impact your credit score. And if possible, don’t make any big life changes that could affect your financial status either, such as starting a new job.
For most buyers, working with a knowledgeable local real estate agent is invaluable. Interview a few people to find a good fit for you. An agent will be able to guide you through the entire homebuying process with professional expertise.
Most likely yes. Assuming a 20 percent down payment on a 30-year fixed-rate mortgage with a 6.5 percent interest rate, you’ll pay about $4,200 per month in housing costs on a $700,000 home purchase. According to the 28/36 rule, you should spend a maximum of 28 percent of your income on housing. For a $200,000 salary, 28 percent equates to $4,666 per month, which is more than enough to cover the monthly $4,200 cost. Just be careful to factor in your other debts and expenditures, to ensure you don’t stretch yourself too thin.
How expensive of a house you can afford will depend largely on your income, your credit score and the prevailing mortgage interest rates. Location matters a lot too, as the same housing budget can go much further in some places than others. You should also evaluate the cost of living in your desired area, as well as the ongoing maintenance costs associated with homeownership.
Inside: This guide will teach you about the different factors you need to consider when purchasing a home with a 70k salary.
There are a lot of factors to consider when you’re trying to figure out how much house you can afford. Your income, your debts, your down payment, and the interest rate on your mortgage all play a role in determining how much house you can afford.
Your situation will be different than the person next-door or your co-coworker.
Making 70000 a year is a great salary. You are making the median salary in the United States.
It’s enough to comfortably afford most homes and gives you plenty of room to save money each month.
But how much house can you actually afford?
It depends on several factors, including your down payment, interest rate, income, and credit score.
In this ultimate guide, we’ll walk you through everything you need to know about how much house you can afford making 70000 a year.
how much house can i afford on 70k
In general, you can expect to spend 28-36% of your income on housing.
Generally speaking, if you make $70,000 a year, you can afford a house between $226,000 and $380,000.
How much mortgage on 70k salary?
In general, you should expect to spend no more than 28% of your monthly income on a mortgage payment.
Thus, you can spend approximately$1633-2100 a month on a mortgage.
Just remember this is relative to the interest rate, term length of the loan, down payment, and other factors.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
But there’s one factor that trumps all the others: The 28/36 rule.
Also known as the debt-to-income (DTI) ratio.
The 28/36 rule is a guideline that says that your housing costs (mortgage payments, property taxes, homeowners insurance, and HOA fees) should not exceed 28% of your gross monthly income.
And your total debt (housing costs plus any other debts you have, like car payments or credit card bills) should not exceed 36% of your gross monthly income.
You must follow the 28/36 rule.
How to calculate how much mortgage you can afford?
If you’re like most people, you probably don’t know how to calculate how much mortgage you can afford.
This is actually a really important question that you need to ask yourself before beginning the home-buying process.
The answer will help determine the price range of homes you should be looking at. Plus know how much money you’ll need to save for a down payment.
Step #1: Check Interest Rates
Research current mortgage rates to get an accurate estimate. You can also check your credit score and search for average mortgage rates based on your credit score.
Right now, with sky-high inflation, you are unable to afford a bigger house when interest rates are hovering around 6% compared to ultra-low interest rates of 2.5%.
With a 70k salary, this can be the difference between $50-100k on the total mortgage amount you can afford.
Step #2: Use a Mortgage Calculator
Use a mortgage calculator to get an estimate of the home price you can afford based on your income, debt profile, and down payment.
Generally, lenders cap the maximum amount of monthly gross income you can use toward the loan’s principal and interest payment to not more than 28% of your gross monthly income (called the “Front-End” or “Housing Expense” ratio). Then, limit your total allowable debt-to-income ratio (called the “Back-End” ratio) to not more than 36%.
You can use a mortgage calculator to a ballpark range of what house you can afford.
Step #3: Taxes, Insurance, and PMI
When planning for a home purchase, it’s important to factor in all of your monthly expenses, including taxes, insurance, and PMI.
This will ensure that you get an accurate estimate of your home-buying budget based on your household annual income.
Don’t forget to include these payments to get a realistic understanding of your monthly budget.
Step #4: Remember your Living Expenses
When considering how much house you can afford based on your $70,000 salary, you must consider your lifestyle and current expenses.
It is important to factor in other monthly expenses such as cell phone and internet bills, utilities, insurance costs, and other bills.
More than likely, you will be approved for a higher mortgage amount than you would feel comfortable with. This is 100% what lenders will do.
They want to provide you with the most you can afford – not what you should afford.
Step #5: Get prequalified
Prequalifying for a mortgage is an important first step to take when estimating how much house you can afford.
It gives you a more precise figure to work with and helps you make a more informed decision based on your personal situation.
Remember that your final amount will vary depending on a number of factors, especially your interest rate, which will be based on your credit score.
Taking the time to research current mortgage rates helps you secure a better mortgage rate, giving you more buying power.
Home Buying by Down Payment
How much house can you afford?
It’s a common question among home buyers — especially first-time home buyers. Use this table to figure out how much house you can reasonably afford given your salary and other monthly obligations.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 4% interest rate.
How Much House Can I Afford?
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Mortgage on 70k Salary Based on Monthly Payment and Interest Rate
How much house can you afford on a $70,000 salary?
This largely depends on the current interest rate of the mortgage loan you’re considering. When interest rates are high, people aren’t actively buying as when interest rates are low.
By understanding these factors, you can better gauge how much house you can afford on a $70,000 salary.
The assumption is 30 year fixed mortgage, good credit (690-719), no monthly debt, and a 20% downpayment.
How Much House Can I Afford?
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Home Affordability Calculator by Debt-to-Income Ratio
Around here at Money Bliss, we always stress that debt will hold you back.
In the case of buying a house, debt increases your DTI ratio.
Here is a glimpse at what monthly debt can cause your debt-to-income (DTI) ratio to increase. Thus, making the house you want to buy to be more difficult.
How Much House Can I Afford?
**Your own interest rate, monthly payment, and how much house you can afford will vary on your personal circumstances.
Increase your Home Buying Budget
Here are a few ways you can increase your home buying budget when buying a house on a $70k annual income.
By following these steps, you can increase your home buying budget and find a more suitable house for your income.
1. Pick a Cheaper Home
Home prices vary significantly in different parts of the country.
Moving out of a major metropolitan area with notoriously high housing costs can help you find more affordable homes.
There are plenty of ways to find a home that is cheaper than you would normally expect.
Look for homes that are for sale in less desirable neighborhoods.
Find homes that are for sale by owner or have not been listed yet.
Check for homes that are for sale outside of your usual price range and haven’t sold as they may drop their price.
Move to a lower cost of living area.
2. Increase Your Down Payment Savings
A larger down payment can reduce the amount you have to finance, which lowers your monthly payment.
Plus help you get a lower interest rate and avoid paying PMI.
Putting down at least 10-20 percent of the home sale price can help boost your home buying power. You can also take advantage of down payment assistance programs in your area.
3. Pay Down Your Existing Debt
Paying down your debts such as credit card debts or auto loans can help raise your maximum home loan.
Paying down your debts can help you qualify for a higher loan amount.
This is because when you have lower amounts of debt, your credit score is higher and your debt-to-income ratio is less. This means you are less likely to be rejected for a home loan.
4. Improve Your Credit Score
A higher credit score can lead to lower rates and more affordable payments.
You can improve your credit score by:
Paying your bills on time
Paying down your credit card balances
Avoiding opening new credit before applying for a mortgage
Disputing any errors on your credit report
This is very true! We had an unfortunate debt that wasn’t ours added to our credit report right before closing. While the debt was an error, it still cost us a higher interest rate and forced us to refinance once the credit report was fixed.
5. Increase Your Income
Asking for a raise, seeking a higher-paid position, or starting a side gig can help you increase the amount of home you can afford.
While you need two years of income from a side gig or your own online business to count as income, the extra cash earned helps you to increase the size of your downpayment. Plus it lowers your debt-to-income ratio with the savings you are setting aside.
What factors should you consider when deciding how much you can afford for a mortgage?
How much house can you afford on your current salary and with your current monthly debts?
This is a question that we are often asked, and it’s one that we love to answer.
We’ll walk you through all the different factors that go into this decision so that you can make an informed choice.
1. Loan amount
The loan amount is a key factor that affects the total cost of a mortgage.
If you have no outstanding debt, a 20% down payment, a high credit score, and a 3.5% interest rate from an FHA loan, you could be able to afford up to $508,000.
However, if you have debt, a smaller down payment, or a lower credit score, the loan amount you can qualify for will be lower.
Similarly, if you choose a 15-year fixed-rate loan, your monthly payments will be higher, but you will end up paying less in interest over the life of the loan than with a 30-year fixed-rate loan.
Ultimately, your loan amount will affect the total cost of your mortgage, so it’s important to consider all the factors when making your decision.
2. Mortgage Interest rate
Mortgage interest rates can have a significant impact on the cost of a mortgage. The higher the interest rate, the more expensive the loan will be.
For example, a difference between a 3% and 4% interest rate on a $300,000 mortgage is more than $150 on the monthly payment.
Remember, in the first few years of a mortgage, the majority of the payment goes toward interest rather than trying to reduce the principal amount.
3. Type of Mortgage
The primary difference between a fixed and variable mortgage is the interest rate and the amount of your payment
Fixed-rate mortgages offer the stability of having the same interest rate for the life of the loan.
Adjustable-rate mortgages (ARMs) come with lower interest rates to start, but those rates can change over the life of the loan. ARMs are often a riskier choice, as if the economy falters, the interest rate can go up.
Fixed-rate loans are typically the most popular choice, as the monthly payment amount is more predictable and easier to budget for. The terms of a fixed-rate loan can range from 10 to 30 years, depending on the lender.
Adjustable-rate mortgages (ARMs) have interest rates that can increase or decrease annually based on an index plus a margin. ARMs are typically more attractive to borrowers who plan on staying in the home for a shorter period of time, as the lower initial interest rate can make the payments more manageable.
The Money Bliss recommendation is to choose a 15-year fixed-rate mortgage.
4. Property value
Property value can have a direct effect on how much you can afford for a mortgage.
As the value of the property increases, so does the amount of money you will need to borrow to purchase it. This, in turn, affects the monthly payments and the amount of interest you will pay over the life of the loan.
This is especially important as many people have been priced out of the market with the rising home prices.
Additionally, higher property values can mean higher taxes, which will add to the amount you need to budget for your mortgage payments.
5. Homeowner insurance
Homeowner’s insurance is a requirement when securing a loan and it can vary depending on the value and location of the home.
Additionally, certain areas that are prone to natural disasters or are located in densely populated areas may have higher premiums than other locations and may require additional insurance like flood insurance.
As a result, lenders typically require that you purchase homeowners insurance in order to secure a loan, and may have specific requirements for the type or amount of coverage that you need to purchase.
Before committing to a mortgage, it is important to consider the cost of homeowner’s insurance and make sure it fits into your budget.
This is something you do not want to skimp on as the cost to replace a home is very expensive.
6. Property taxes
Property taxes are calculated based on the value of a home and the tax rate of the city or county where the property resides.
The higher the property taxes, the more you will have to pay in your monthly mortgage payment.
In states with high property taxes, the property tax bill can be a large sum of the mortgage payment.
It is important to consider these costs when comparing different homes and locations to ensure you can afford the home without stretching your budget too thin.
7. Home repairs and maintenance
It’s important to also consider other factors such as the age of the house, since some properties may require renovation and repairs that can cost more than the house price itself.
Beyond the cost of purchasing a home, homeowners will likely have other expenses related to owning and maintaining the property.
Also, many homeowners prefer to do significant upgrades to the home before moving in, which comes at an additional expense.
These can include ordinary expenses such as painting, taking care of a lawn, fixing appliances, and cleaning living spaces, which can add up.
Additionally, it’s advisable to buy a home that falls in the middle of your price range to ensure you have some extra money for unexpected costs, such as repairs and maintenance.
8. HOA or Homeowners Association Maintenance
This is often an overlooked factor by many new homebuyers, but extremely important as some HOAs add $500-800 per month to the total housing budget.
The purpose of a homeowners association (HOA) is to establish a set of rules and regulations for residents to follow as well as maintain the community or building.
These fees are typically used to pay for maintenance, amenities, landscaping, and concierge services.
HOA fees are used to finance community upkeep, including landscaping and joint space development, and can range from $100 to over $1,000 per month, depending on the amenities in the association.
9. Utility bills
When switching from renting to buying a home, you will have to factor in the costs of your monthly utility bills such as electricity, natural gas, water, garbage and recycling, cable TV, internet, and cell phone when calculating how much mortgage you can afford.
In addition, the larger the home, the higher the costs to heat and cool your new home.
Make sure to ask your realtor for previous utility bills on the property you are interested in.
10. Private Mortgage Insurance
The purpose of private mortgage insurance (PMI) is to protect the lender in the event of foreclosure. It is typically required when a borrower is unable to make a 20% down payment on a home purchase.
PMI allows borrowers to purchase a home with less upfront capital, but also comes with additional monthly costs that are added to the mortgage payment. These fees range from 0.5% to 2.5% of the loan’s value annually and are based on the amount of money put down.
PMI can also be canceled or refinanced once the borrower has achieved 20% equity in the home or when the outstanding loan amount reaches 80% of the home’s purchase price.
11. Moving costs
Moving is expensive, but also a pain to do. So, consider the moving costs associated with relocating from one location to another.
Typically fees for packing, transportation, and possibly storage, and can vary depending on the size of the move and the distance the move needs to cover.
Also, consider if by buying a home, you will stop having moving costs associated with moving from rental to rental.
When determining how much house you can afford, it’s important to consider several factors.
These include your income, existing debts, interest rates, credit history, credit score, monthly debt, monthly expenses, utilities, groceries, down payment, loan options (such as FHA or VA loans), and location (which affects the interest rate and property tax). Also, think about the costs of maintaining or renovating a home.
Additionally, you should also evaluate your own budget and assess whether now is the right time to purchase a home. Taking all of these factors into account can help you set the maximum limit on what you can realistically afford.
A mortgage calculator can help you determine your home affordability by providing an estimate of the home price you can afford based on your income, debt profile, and down payment.
It works by inputting your annual income and estimated mortgage rate, which then calculates the maximum amount of money you’re able to spend on a house and the expected monthly payment.
Additionally, different methods are available to factor in your debt-to-income ratio or your proposed housing budget, allowing you to get a more accurate estimate of your home buying budget.
The debt-to-income ratio or DTI is used by lenders to assess a borrower’s ability to make mortgage payments.
This ratio is calculated by taking the total of all of a borrower’s monthly recurring debts (including mortgage payments) and dividing it by the borrower’s monthly pre-tax household income.
A high DTI ratio indicates that the borrower’s debt is high relative to income, and could reduce the amount of loan they are qualified to receive.
Generally, lenders prefer a DTI of 36% or less, which allows borrowers to qualify for better interest rates on their mortgages.
To calculate their DTI, borrowers should include debt such as credit card payments, car loans, student and other loans, along with housing expenses. It is important to note that the DTI does not include other monthly expenses such as groceries, gas, or current rent payments.
Closing costs can have an enormous impact on how much home you’re able to afford.
From application fees and down payments to attorney costs and credit report fees, these costs can add up quickly and affect your overall budget. Unfortunately, most of these closing costs are non-negotiable, but you can ask the seller to pay them.
When buying a house, it is important to research the different mortgage options available to you.
You can typically choose between a conventional loan that is guaranteed by a private lender or banking institution, or a government-backed loan. Depending on your monthly payment and down payment availability, you may be able to select between a 15-year or a 30-year loan.
A conventional loan typically offers better interest rates and payment flexibility.
While a government-backed loan may be more lenient with its credit and down payment requirements.
For veterans or first-time home buyers, there may be special mortgage options available to them.
Ultimately, it is important to talk to a lender to see which loan type is best for your personal circumstances.
When it comes to saving for a down payment, it’s important to understand how much you’ll need and how much it will affect your budget.
Generally, you’ll need 20% of the cost of the home for a conventional mortgage and 25% for an investment property. When you put down more money, it gives you more buying power and may help you negotiate a lower interest rate.
For example, if you’re buying a $300,000 house, you’ll need a down payment of $60,000 for a conventional mortgage. On the other hand, if you put down 10%, you can still afford a $395,557 house. But, you will have to pay for private mortgage insurance.
In addition, there are other ways to help you cover these upfront costs. You can look into down payment assistance programs.
Ultimately, the size of your down payment will depend on your budget and financial goals. You should never deplete your savings account just to make a larger down payment. It’s important to factor in emergency funds and other expenses when deciding on the best option.
Eligibility requirements for loan lenders can vary, but in general, lenders are looking for borrowers with a good credit score, a reliable income, and a history of employment or income stability.
For most loan types, borrowers will need to show a history of two consecutive years of employment in order to qualify. However, lenders may be more flexible if the borrower is just beginning their career or if they are self-employed and do not have W2 forms and official pay stubs.
Income verification also needs to be done “on paper”, meaning that cash tips that do not appear on pay stubs or W2s can not be used as income. The lender will look at the household’s average pre-tax income over a two-year period before determining the amount that can be borrowed.
In order to make sure that the borrower is financially secure, lenders will also pull the borrower’s credit report and base their pre-approval on the credit score and debt-to-income ratio. Employment verification may also be done.
For certain government-backed loan types, such as FHA, VA, and USDA loans, there may be additional or different requirements for eligibility. For instance, for FHA loans, the borrower must intend to use the home as a primary residence and live in it within two months after closing. VA loans are more lenient, and may not require a down payment.
The qualifications for VA loans vary based on the period and amount of time the borrower has served. There are many ways to qualify, whether the borrower is a veteran, active duty service member, reservist, or member of the National Guard. For more information on eligibility requirements for VA loans, borrowers can visit the U.S. Department of Veteran Affairs.
A good credit score will mean you have access to more lending options, better interest rates, and more purchasing power.
On the other hand, a poor credit score could mean you are approved for a loan, but at a higher interest rate and with a smaller house.
This means your budget will be more limited and you may not be able to buy as much home as you had hoped for. Additionally, lenders will also look at other factors, such as your debt-to-income ratio, employment history, and loan term, in order to determine your overall affordability.
What House Can I Afford on 70k a year?
As a borrower, you need to consider the interest rate, down payment, credit score, debt-to-income ratio, employment history, and loan term when determining how much house you can afford.
A higher credit score can often mean a lower interest rate, and a larger down payment can bring down the monthly payments.
All of these factors can have an effect on the amount of money you can borrow and the home you can afford.
Ultimately, understanding the impact of different factors can help borrowers make the best decisions when it comes to getting a mortgage.
Now that you know how much house you can afford, it’s time to start saving for a down payment.
The sooner you start saving, the sooner you’ll be able to move into your dream home. But you may have to wait if you are considering a mansion.
By taking into consideration this guide into account, you can make a more informed decision about the cost of a mortgage for your new home.
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