With a salary of $100,000 a year you might be looking at homes priced between $300,000 and $370,000, considering current mortgage interest rates of about 6.5% to 7% for a 30-year fixed loan. This range is calculated to ensure you stay within financial safety boundaries while making one of the biggest purchases of your life.
To figure out your housing budget, it’s useful to stick to the 28% rule. This means that no more than 28% of your monthly income should go towards housing costs. For an annual salary of $100,000, this equates to about $2,333 per month.
However, remember that this amount should cover not just your mortgage, but also property taxes, home insurance, and possibly other fees like homeowner’s association dues. Dive into the article to understand the factors that impact how much house you can really afford and to see some examples based on different credit and financial situations.
hash-markTable of Contents
Factors Affecting How Much House You Can Afford On 100K Salary
The 28% Rule For $100K Salaries
$100,000 Salary House Affordability Examples
What House Can You Afford On 100k a Year Bottom Line
hash-markWhat Determines How Much House You Can Afford On $100K Salary
- Savings
- Current Expenses
- Credit Score
- Length of Employment
- Interest Rates
The exact amount of house you can afford will depend on your credit score, interest rate, and other financial factors.
1. Savings
Your savings play a big part in how much house you can afford on a $100K salary. Most of the time, you'll need to make a down payment when you buy a house. This is money you pay upfront, and it's usually between 5% and 20% of the home's price, unless you get a special loan like a USDA or VA loan that doesn't require any down payment.
On top of the down payment, there are also closing costs. These are extra fees that can be anywhere from 3% to 6% of the total amount you borrow. The more money you have saved, the bigger the loan you can handle because you'll be able to cover these upfront costs.
2. Current Expenses
The 28% rule suggests that you should spend no more than 28% of your monthly income on housing expenses. With your $100,000 yearly salary, this adds up to about $2,333 each month. Keep in mind, this isn't just for your mortgage payments. It also needs to cover other housing-related costs like property taxes, home insurance, and maybe even homeowner's association fees.
So when you're applying for a loan, make sure you consider all these expenses. It’s not just about how much you can borrow; it’s also about managing these costs within your monthly budget. This way, you can stay comfortable with your spending while enjoying your new home.
3. Credit Score
Your credit score will also significantly impact what type of loan you qualify for and how much you can borrow. Conventional loans require a credit score of at least 680 and above, while other loan programs such as FHA, VA, and USDA loans have laxer requirements. Plus, the length and amount of credit you have will also impact how lenders will be willing to give you. The higher your credit score, the lower your interest rate will be, and the more house you can afford. So, if you just started building credit, you may be approved for a smaller amount than if you have a long credit history, even if your score is good.
4. Length of Employment
The length of your employment history will also impact how much money a bank will be willing to give you. For instance, if you were just recently hired, you’ll likely be approved less than if you’ve been in the field for 25 years. Lenders not only want to see that you make enough money, but they also want to know that you have a long track record of employment because it decreases the likelihood that you’ll default.
5. Interest Rates
The final factor determining how much house you can afford is interest rates. As of Jan 2024, most 30-year mortgages carry an interest rate between 6.5% and 8%. If interest rates were to drop back to 2021 levels, mortgages would become significantly cheaper, and your buying power would increase. For example, a 1% drop in interest rates would give you about 10% more buying power.
hash-markThe 28% Rule For 100K Salaries
Most experts recommend using the 28% rule when budgeting for a home. According to this rule, your housing expenses should not exceed more than 28% of your monthly income. So, if you make exactly $100,000 per year, you make about $8,333.33 per month. That means you should not spend more than 2333.33 on your housing expenses (28% of $8,333.33). Remember that this will include your mortgage payment and expenses like taxes, insurance, and homeowner’s association fees. So, factor in those costs when applying for a loan.
hash-mark$100,000 Salary House Affordability Examples
- Low Credit and Higher Interest Rate
- Good Credit and Average Interest Rate
- Great Credit and Low Interest Rate
1. Low Credit and Higher Interest Rate
Here is an example of a borrower with a lower credit score and less money saved for a down payment. The borrower in this scenario would likely go with an FHA loan that requires 5% down. Here is what the loan profile of this borrower might look like:
Annual Income: $100,000
Credit Score: 645
Down payment: 5%
Interest Rate: 6.882%
Max Loan Amount: $284,500
To stay within the 28% rule, the maximum amount that this borrower could safely afford is $284,500 at 6.882%, which would be a monthly payment of $1777 plus $555 in taxes and fees for a total cost of $2,332 per month.
2. Good Credit and Average Interest Rate
Here is an example of your more traditional borrower with a good credit score and a decent amount saved for a down payment. Their credit profile may look like this:
Annual income: $100,000
Credit Score: 700
Down payment: 15%
Interest rate: 5.809%
Max Loan Amount: $358,600
This borrower could afford up to $358,600 while staying within the 28% rule. That would be a monthly mortgage payment of $1790 and taxes and fees of $543 for a total monthly payment of $2,333.
3. Great Credit and Low Interest Rate
Now let’s look at a borrower with outstanding credentials who can afford the full down payment. Their loan profile would look like this:
Annual Income: $100,000
Credit Score: 750
Down payment: 20%
Interest Rate: 5.584%
Max Loan Amount: $394,200.
This borrower could afford up to $394,200 while staying within the 28% rule. This would mean a monthly payment of $1807 with an additional $526 in taxes and fees for a total of $2,333.
These are just ballpark estimates, and your rate can also vary greatly depending on your debt, employment history, and other factors. But this gives you an idea of how loan amounts can vary greatly, even if the borrowers have the same annual income.
hash-markWhat House Can You Afford On 100k a Year Bottom Line
In conclusion, how much house you can afford with a $100,000 salary will largely depend on your savings, credit score, and other financial commitments. From our calculations, a realistic range for you would likely be between $300,000 to $370,000. This takes into account adhering to the 28% rule with current interest rates for a 30-year fixed mortgage.
If your credit is on the lower side, you might find yourself closer to the $300,000 mark, while a higher credit score and more savings could potentially stretch your budget closer to $370,000. It’s essential to balance your home buying aspirations with a budget that won’t stretch you too thin.
