Several obstacles come with buying a house, especially if you’re a low-income earner. As a result, it’s normal to see topics like “I make 30k a year, can I buy a house” popping up on several threads.
The good news is that you can get a good house for $30k. However, factors such as your location, and credit score will determine how much mortgage you’ll receive from the lender. But how can I go about this, you may be wondering. This article will show you how to get loans from mortgage lenders with a $30,000 a year salary.
How Much Mortgage Can You Get With a $30,000 Yearly Income?
If you’re one of those asking this question, “Can I buy a house making 30k a year?” It simply means you’re already in search of a house but not sure if your mortgage lender will approve of your loan. The good news is that you can get a house even with a $30,000-a-year income.
Note that your mortgage lender will first verify your yearly salary when evaluating your loan application. This information helps the lender confirm whether or not your monthly mortgage and other housing expenses will exceed 28% of your monthly income.
While the 28% rule is important in determining how much mortgage you can receive, this isn’t the only factor your lender considers. One of the main benefits of sticking to this rule is that it allows you to set a realistic budget while house-hunting on different websites.
If you were to follow the 28% rule, a $30,000 a year income would only qualify you for a $700 monthly mortgage payment. To help you understand better, a person earning a $30k yearly income makes $2500 per month. If such an individual is to follow the 28% rule, they can only afford a monthly mortgage payment of 28% of their gross monthly income.
Therefore, such a person can only afford to pay $700 of their mortgage monthly, equating to a home worth between $125k and $175k, depending on location, credit score, financing, amongst others. Another financial factor your mortgage lender may consider is the price of the home. Generally, your home shouldn’t cost more than three times your yearly salary.
Most lenders sometimes prefer that your house be less than 2.5 times your annual salary. If you earn $30,000 a year, it’s best to have a maximum budget of $90,000.
Factors That Affect Your Loan Application
Income plays an important role when it comes to acquiring a house. If you have been asking “I make 30k a year, can i buy a house?” Well, the answer depends on the following factors:
Debt-to-income ratio (DTI)
Your debt-to-income ratio, also called DTI, is the percentage of your income taken for debt payments, such as credit card payments, auto loans, student loans, and other factors. To get your debt-to-income ratio, divide your monthly debt payments by your gross income.
Most mortgage lenders prefer a 36% or less debt-to-income ratio. Check to see if your debt-to-income ratio is higher than 36% before applying for a loan. If your DTI is too high, try to repay most of your debts before contacting a mortgage lender.
Credit Score (CS)
Your DTI is not the only financial factor your mortgage lender considers. Your credit score also determines the mortgage rates you’ll receive at the end of the day. A high CS will make you eligible for better mortgage rates. Your credit score tells the mortgage lender all they need to know about your loan-repayment attitude.
If you have a bad credit score, you’re basically telling the lender that you’re likely to miss or make late payments. Your credit score can range from 300 to 850, and having a CS above 650 will get you a better mortgage rate. We recommend improving your credit scores before applying for a loan.
Your down payment is the percentage of your mortgage that you pay upfront. For example, if a house costs $150,000 and your mortgage lender asks you to pay 20% upfront, you’ll be taking $30,000 out of your wallet.
While most lenders won’t force you to pay 20% upfront, doing so will qualify you for better mortgage rates. Furthermore, note that the minimum down payment required for a mortgage depends on the loan type and your credit history.
How to Improve your Mortgage Rate
“Can you buy a house making $30,000 a year?” may be difficult to answer when you don’t know what to do. The truth is, you can get a house with such a salary.
Additionally, there are certain things you can do to influence the mortgage lender’s final decision. If you’re struggling to get your dream house, here are several options that can help you get a better mortgage deal:
Work on Your DTI
The first step towards getting a house with a $30,000 per year salary is to lower your DTI. Besides your credit, your DTI is one of the important factors your lender considers. You might want to lower it by paying off your outstanding debts.
If you make $5,000 monthly, it wouldn’t be best to have a monthly debt of over $1,800. Aim for a DTI of 36% or lower. A lower DTI will give you a better chance at a mortgage loan.
Raise Your Credit Score
A good credit score will make you eligible for better loan amounts and lower interest rates. You can raise your CS by removing errors from your report, repaying outstanding debts, and consolidating your debts. Additionally, ensure you get your credit report from the credit bureaus to see why your credit score is low.
You can request your credit report from three different bureaus – Equifax, Experian, and TransUnion. Getting your credit report will help you see if there are any inaccuracies to address. You can file a complaint with the credit bureaus if you notice any errors.
Try Federal Loans
The loan type also determines how much mortgage you’ll receive from the lender. It may interest you to know that federal loans come with several other benefits. Federal loans, such as VA, USDA, and FHA loans, offer more flexibility and may help you get the property you want.
For example, FHA loans are backed by the Federal Housing Administration and are more flexible with their loan requirements than conventional lenders. Also, the banks will still receive their payment even if you default on your mortgage.
On the other hand, VA loans are more flexible and lenient with their requirements. These loans are mostly given to people who served in the military or have military connections. Lastly, If you want to buy a home in a rural area, USDA loans may be just what you need.
You’re eligible to apply for a USDA loan if the property you want to buy is within a rural area or specific geographical area.
Frequently Asked Questions (FAQs)
What Is the Right Amount to Spend on a Home?
As long as you can make your payments easily, you can spend whatever amount you wish on the house. If you’re comfortable spending more than 25% of your monthly income on a house, then go ahead and get a mortgage loan.
Is Mortgage Pre-approval Important?
Yes, mortgage pre-approval is important if you’re serious about buying a property. A mortgage pre-approval will give you a clear picture of the type of loan and how much home you can buy. It’s a good idea to be pre-approved by several lenders so you can compare their rates and choose the one with the best deal.
Is $30,000 a Year a Good Salary?
If you make $30,000 a year, you earn $2,500 monthly and $14.42 per hour, assuming you work 40 hours weekly. Whether this is a good salary depends on where you live and if you have a family. If you live alone and stay in an area with a reasonable cost of living, then this salary may be okay for you.
Your monthly income, credit score, down payment, and debt-to-income ratio are some of the factors determining how much mortgage you can receive from a lender. If you have a good CS and DTI, then the answer to the question “I make 30k a year can I buy a house” may just be yes. You can also apply for federal loans as they offer more flexibility.
If you’ve decided to become a homeowner with your 30k a year salary, you’ll need the best real estate agency with affordable property listings for all budgets.
Homebyardor is dedicated to helping you get your dream house at the best possible price. Visit us today to get your dream home according to your budget and preference.
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.