One of the most popular questions across the internet is “how much house can I afford with 100k salary?”
For starters, your $100,000 salary offers you a shot at an excellent home purchase budget.
However, to calculate how much house you can afford, you need to account for several critical items. These items include your monthly debts, such as student loan payments and car loans.
You also need to consider the savings available for making a down payment.
Further, qualifying for the lowest mortgage rates (giving you a bigger loan amount) requires low debts, a strong credit score, and a decent down payment.
Adding these factors together with your $100 annual income means that you have several doors in the mortgage sphere open.
This article explores different ways a 100k salary can affect your homeownership dreams, factors that will determine the house you get, and tips for purchasing a home.
How to Calculate Affordability
You can use an affordability calculator that lets you customize the mortgage payment details. Many calculators also offer suggestions that make it easier to get started.
Calculate affordability based on annual or monthly income, monthly debts, and down payment.
However, other factors come into play when calculating affordability. Below are some of the common items required for the calculation (more on them further down):
- Annual income
- Total monthly debts
- Down payment
- Debt to income ratio
- Interest rate
- Loan term
- Property tax
- Homeowner’s Insurance (HOI)
- Private Mortgage Insurance (PMI)
- Homeowner’s Association (HOA) dues
Some online calculators do factor in all the costs that go into your monthly payment. The result is an unrealistic estimate of how much house you can afford.
For an accurate estimate of your home buying budget, use a mortgage calculator that accounts for PMI, insurance, and taxes. Even better, consult a lender for a free mortgage loan estimate.
What House Can I Afford on 100k a Year—3 Scenarios
Your income is just one variable that determines how much you can borrow for a mortgage.
So, three different people earning 100k per year but with different debt levels, credit scores, and savings will realize very different mortgages.
Consider these three people, each with a $100,000 annual salary and other requirements factored in.
Person 1: A $100k Salary, High Debts, and Low Credit Score
This is someone who may have existing debt from multiple credit lines, including an auto loan and credit.
Person 1 could also be a recent graduate looking forward to buying a house with $100k student loans and has not built their credit.
No matter the circumstances, a low credit score and high debts mean your home purchasing budget is on the low spectrum end.
Income is $100,000 per year
Credit score stands at 650
The down payment on the home is 5%
Debts are $1,000 a month
The interest rate is at 4.5% (for this example only)
The estimated home value is $400,651
Person 2: $100k salary, Averagely Low Debts, Good Credit
The second borrower has:
Income is $100,000 per year
Credit score stands at 700
The down payment on the home is 15%
Debts are $250 a month
The interest rate is at 3.5% (for this example only)
The estimated home value is $659,414
The second borrower receives a lower interest rate because of a better credit score, relatively low non-mortgage debts, and a 15% down payment.
Person 3: $100k annual salary, No Debts, and Great Credit
The third borrower has an excellent 760 credit score. They do not have debts and will put down 20%.
While the third borrower is earning the same salary as the first two, they receive a lower interest rate—increasing their potential mortgage amount.
Income is $100,000 per year
Credit score stands at 760
The down payment on the home is 20%
Debts are $0 a month
The interest rate is at 3.25% (for this example only)
The estimated home value is $808,414
The examples above assume that the homeowner’s insurance rate is $1,383 a year, which is the current U.S. average.
Your home buying budget will vary depending on the mortgage rate, property taxes, HOA fees, insurance rates, and other factors.
With a $100k salary how much house can I afford?
The three scenarios show how a low DTI, high credit score, and a bigger down payment can increase the home you afford with your salary.
Factors that Determine How Much House You Can Afford
It helps if you can consider various critical factors as you research “what house can I afford on 100k a year”. These include:
The amount of money you are making has a significant influence on the home you can afford. Mortgage lenders use the income to determine the loan you are eligible for.
Further, the gross monthly income (in this case, $8,333) sets the baseline of how much you can afford to pay.
The gross income can be the total monthly revenue you and anyone you are co-borrowing with receives from different sources. Your gross monthly can accumulate from your employment, business, dividend earnings, self-employment, pensions, and rental income.
Other things lenders consider when calculating your income include:
- Child support
- Sick pay
- Alimony payments
- Social security benefits
- Income from trusts
- Unemployment compensation
The lenders will also require several documents to determine your 100k income, such as:
- Your W-2 forms and tax returns
- 1099s if you are in self-employment
- Recent copies of your pay stubs
- Employment verification
Self-employed individuals or those in seasonal employment are required to explain income anomalies to the lender.
Debt-To-Income (DTI) Ratio
DTI compares your debt to how much you are making, specifically monthly debt against monthly pre-tax household income. The ratio is a critical metric for lenders to determine how much you can borrow or if you can borrow.
DTI accounts for debts, such as:
- Credit card payments
- student loans
- Car loans
- Housing expenses in case of approval
However, the ratio does not consider monthly expenses, such as your current rent payments, gas, or groceries.
A high DTI value shows that debt is high compared to income, and vice versa. High DTIs make it harder to qualify for a mortgage. Most lenders will not consider applicants with a DTI higher than 43%.
Mortgage lenders prefer if borrowers have a 36% DTI or less, resulting in better interest rates.
Your Credit Score
Good credit is critical as you apply for a mortgage. The score shows the lender if you can fulfill your credit obligations.
The lender is presenting you a long-term loan taking up to 30 years. During that time, you may undergo financial misfortunes, switch jobs, and the market will change and mature. So, the lender needs a baseline guarantee of your capacity and willingness to reimburse the loan.
A satisfactory credit score is essential for mortgage lenders and is beneficial in several ways, including:
- The credit score determines what type of loan you qualify for. For example, a conventional loan requires a FICO score of 620, while an FHA loan requires a minimum 580.
- A high score attracts better terms from lenders. You can purchase more houses using the same down payment and enjoy lower interest rates.
The Down Payment
Most buyers must give a down payment on their potential home, with the exception if you qualify for a 0% down payment or VA loan. Conventional loans require at least a minimum down payment of 5%.
However, you can pay as little as 3% as long as you have a high credit score, a low DTI, and meet other requirements. The minimum for FHA loans is 3% to 5%.
Providing a 20% down payment on your home helps you:
- Reduce the loan-to-value ratio
- Increase the chances of getting a lower interest rate
- Lower the monthly payments
- Purchase enough home equity to bypass Private Mortgage Insurance (PMI)
You have an option to refinance your mortgage later on if you do not have enough to cover the 20% down payment. The strategy lets you earn better rates if market conditions improve.
The Interest Rate
Interest rate is what a lender is offering you, and it affects how much home you can afford with a 100k salary. So, securing a low-interest loan can make the overall cost of purchasing a home on the higher end of your budget less expensive.
However, whether you qualify for a low-interest loan depends on your credit score. A high score increases the chances of receiving a better rate from a lender. Keep in mind that debt and income can also influence your interest rate.
There are other costs you need to consider as you determine how much house can I afford with 100k salary. These costs include:
- Closing costs—Closing costs are your responsibility after concluding the home purchase process. The lender will provide a closing cost estimate that includes appraisal fees, credit report fees, loan origination fees, and title search expenses. Costs can range between 3% and 6% of the maximum purchase price.
- Property taxes—You must pay property taxes if you own property in any state. Get the amount by multiplying the local tax rate by the assessed property value.
- Homeowners’ insurance—The cost will depend on your location, community, and property type you are buying. Factors that determine the estimate include prospective rebuild expenses, the value of at-risk assets, and home value.
How to Improve Your House Affordability
As mentioned earlier, how much a 100k house you can afford depends on the income, credit score, DTI, and upfront payment amount. Better performance in the criteria increases the chances of securing the best kind of mortgage.
Here are a few ways to increase the mortgage amount you can afford with $100,000.
Increase Your Cash Reserves
Mortgage lenders want to know whether you have a cash reserve after buying a home. So, increasing your cash reserves before and after the purchase is critical.
Put money in the bank after buying the house to avoid foreclosure and default. The cushion assures lenders you can make subsequent payments if your financial situation changes.
The rule of thumb is to save at least enough money to cover three months’ worth of house payments, but six months is ideal.
Improve Your Credit Score
A higher credit ensures you receive lower interest rates and larger mortgages. Improve your score by making payments on time. Don’t max out credit cards and do not apply for extra credit while applying for a mortgage.
Improve the DTI Ratio
Most mortgage lenders will offer loans to borrowers with a low DTI ratio. Maintain your DTI at 36% when applying for a mortgage loan. However, the strategy can be difficult if you are dealing with many debts.
If debts are hampering your efforts to get a good mortgage, try:
- Consolidating your debts into a single payment to improve your credit score and lower the debt interest rate, reducing your monthly expenses.
- Increasing your income so you have more money left over, even after making your monthly debt payments.
Put 20% and Above on Down Payment
Putting down at least 20% on a house means you will not have to pay PMI. It also increases your chances of getting a bigger loan. Pay the lender more money upfront if you have some money left over after making the 20% down payment to reduce your interest rate further.
A Few Things You Should Know When Buying a House on a 100k Salary
Your salary affects how much you can borrow and impacts the loans you can access.
100k Income Limits Down Payment Assistance (DPA)
Earning $100,000 annually also puts you out of bound of several DPA programs. However, there are many DPA programs at the state and local levels. So eligibility will vary depending on the location.
Some programs have caps beyond a specific income threshold. So, make sure you know the requirements if you are depending on the DPA to buy a home.
Consider Income Limits on Mortgage Programs
Programs such as 0% down USDA mortgage come with income limitations on who can qualify. For example, households with one to four members have an income limit of $91,900, while households with up to eight members have a limit of $121,300.
Loan Limits to Consider
Even conventional loans without income limits may have a cap on the home value you can purchase—these are conforming loan limits.
The federal government sets these limits annually. A mortgage exceeding the limits are “jumbo mortgage” and does not receive a government guarantee. The limit for most counties is just above $647,000, but it increases to $970,800 in some high-cost areas.
So, how much house can I afford with 100k salary?
The answer lies in understanding the basics of the mortgage process and how it works. This includes comparing mortgage programs and looking for ways to save money. The strategies above will help you search for homes within your price range while reassuring real estate agents and sellers you are in the right range when touring homes.
Kris Reid is the CEO of Ardor SEO, a company that helps real estate professionals get more leads and customers to predictably grow their business.
Over the years, Kris acquired extensive knowledge of SEO and its practical applications in various industries, with the main focus on real estate.
In 2021 Ardor launched the Icons of Real Estate Podcast to share proven strategies from the top producing icon agents with the real estate community.
After obtaining the real estate license in 2022, Kris joined eXp Realty and launched Homes by Ardor, the platform that was built to be the fastest way to buy or sell a house. Homes by Ardor also provides leads for its partner companies and realtors.