Owning a house isn’t a prerequisite for those earning a $100K salary annually. Surprisingly, a survey reveals that 69% of those making $100,000 or more find themselves living paycheck-to-paycheck. Despite the fact that $100,000 is a good salary, it’s still quite intricate to afford the dream home within this salary range as it demands careful consideration of various factors. These comprise your personal financial situation, the prevailing housing prices in your locality, your specific requirements for a home, and your long-term financial objectives. Indeed, you should take into account your future aspirations beyond purchasing a house. So, how much house can I afford with a 100k salary? Let’s explore!
Start With the 30% Rule for Home Buyers
Financial advisors profess that the best personal finance tip for an American employee is to allocate approximately 30% of monthly earnings towards housing expenses. With $100,000 annually and following the 30% rule, allocations should be approximately $2,500 per month for housing payments.
Having a 10% initial down payment and a steady 6% interest rate, you would probably be capable of acquiring a dwelling valued at approximately $350,000 to $400,000 (taking into consideration tax and home insurance expenditures).
While commonly referred to as the “30% rule,” it is advisable for potential home purchasers to perceive it as a general recommendation rather than a strict regulation.
For instance, an individual earning $100,000 without any outstanding financial obligations and dependents could potentially allocate 40% or even higher of their earnings toward housing costs. Conversely, another individual earning the same amount, but burdened by two car loans, a substantial student loan debt, and a large family, might only be able to allocate 25% of their income toward housing.
The additional expenses associated with owning a home, such as land levies, household coverage, private mortgage protection, and homeowners association fees, will also influence your home purchase budget. These supplementary monthly expenses have an impact on your overall budget for purchasing a home. Minimizing expenditure on these extra fees can enhance your ability to afford a more desirable home.
How to Determine What House Can I Afford on $100K A Year?
1. Manage Savings
The money you save for unforeseen circumstances will also influence the amount you can manage. The majority of lenders will demand an initial payment at closing unless you meet the criteria for a USDA or VA loan that requires no down payment. Consequently, based on the loan prerequisites, you must provide a down payment ranging from 5% to 20%. Furthermore, you will need to account for closing expenses, which usually range from 3% to 6% of the overall loan sum.
Thus, the funds held in your bank account will play a crucial role in assessing the possible loan amount you can undertake. SpoliaMag team highly recommends reading these personal finance books to boost your savings.
2. Mortgage Eligibility
The amount of money you currently spend is an additional element that will influence your eligibility for a mortgage. Take into account any payments for your vehicle, insurance, educational loans, financial support for children, spousal maintenance, credit card statements, healthcare debts, or any other regular monthly expenditures you may have. By reducing your monthly outflows, you increase your real affordability, so gaining control over your financial responsibilities is essential.
3. Credit Score
Your credit score dramatically influences your borrowing potential and loan eligibility. Traditional loans necessitate a minimum credit score of 680 or higher, whereas alternative loan options like FHA, VA, and USDA loans have more lenient criteria. Additionally, the duration and extent of your credit history will also influence lenders’ willingness to provide you with funds.
An excellent credit rating corresponds to a reduced interest rate and enhanced affordability when acquiring a residence. Therefore, individuals who have recently initiated credit-building may receive approval for a smaller loan amount compared to those with an extensive credit history, even if their credit score is favorable.
4. Work Experience Duration
Unless you are enjoying multiple passive income streams, the duration of your work experience will influence the loan amount a bank is willing to offer. For example, if you were recently employed, you’ll probably receive lesser approval compared to someone with 30 years of experience in the industry. Lenders not only assess your income but also consider your extensive employment history, as it reduces the chances of loan default.
5. Interest Rates
The ultimate element that influences the affordability of a house is the prevailing interest rates. As of April 2024, most 30-year mortgages carry an interest rate is 7.14%. If interest rates were to drop back to 2021 levels, mortgages would become significantly cheaper, and your buying power would increase. For instance, a 1% decrease in interest rates would grant you approximately 10% additional purchasing capability.
Examples of How Much House Can You Afford With $100K Salary?
Let’s explore a few illustrations that reflect various circumstances to understand better the housing options within reach on a $100,000 annual income.
1. Purchasing a Home with a $100,000 salary and excellent Creditworthiness
In our initial illustration, let’s consider an individual earning $100K through an employment in a well-known REIT like RealtyMogul or Realty Income and possessing a commendable credit score of 740. He carries no recurring debts and intends to make a 20% down payment toward their desired property.
This purchaser could be eligible for an interest rate of 5.75 percent. By making a payment of approximately $2,495, this individual can acquire a property priced at $450,000. In this scenario, we assume the annual rate for homeowners insurance is $1,200, representing the average in the United States, and the tax rate is 0.78%. As the borrower made a down payment of 20%, the lender imposed no premiums for private mortgage insurance (PMI).
| Income | Credit score | Down payment | Debt | Interest rate | Estimated home value | Monthly Payment |
| $100,000/year | 740 | 20% | $0 a month | 5.75% | $450,000 | $2,495 |
2. Purchasing a House with an Annual Income of $100,000 and a Strong Credit Score
The second borrower earns $100K per year and wishes to allocate approximately $2,500 toward their monthly house payment. Their credit score stands at 700, and they have non-mortgage debts of $250 per month. The borrower can make a down payment of 15% for the house.
Considering these details, the buyer might be eligible for an interest rate of 6.75%. As a result, they could qualify for a home priced at approximately $360,000. Now, let’s perform the calculations:
| Income | Credit score | Down payment | Debt | Interest rate | Private mortgage insurance | Estimated home value | Monthly Payment |
| $100,000/year | 700 | 15% | $250 a month | 6.75% | $200 a month | $360,000 | $2,521 |
There’s a significant difference in the second scenario as the buyer’s down payment was less than 20%, resulting in the inclusion of private mortgage insurance (PMI). This PMI coverage increased the monthly payments by $200.
3. Purchasing a House with a $100K Salary and Modest Creditworthiness
Now, let’s examine a scenario involving a prospective homeowner earning $100,000 annually who possesses a credit score on the lower side and carries relatively substantial debt. This individual could be a recent graduate burdened with student loans, lacking an opportunity to establish a solid credit history. Alternatively, they might have outstanding debt from multiple sources, such as credit cards and a vehicle loan. Regardless of the circumstances, a lower credit score and increased debt levels imply that the home-buying budget will be relatively restricted.
| Income | Credit score | Down payment | Debts | Interest rate | Private mortgage insurance | Estimated home value | House payment |
| $100,000/year | 650 | 5% | $1,000 a month | 7.75% | $250 | $290,000 | $2,514 |
The individual possesses a credit score of 650, which remains sufficient to meet the requirements for a conventional loan. However, due to a relatively smaller initial payment, this borrower’s private mortgage insurance (PMI) rate is slightly higher compared to the borrower in the second example.
Please note that these figures are rough approximations, and your specific interest rate may fluctuate significantly based on factors such as outstanding debts, employment background, and other relevant considerations. Nevertheless, this provides a general understanding of the substantial differences in loan amounts, even when borrowers possess identical yearly earnings.
How Much is Required as Upfront Payment for Buying a House? Down Payment
The subsequent phase in the process of purchasing a house involves setting aside funds for an upfront payment. This payment refers to the initial amount of money you provide when buying a house, while the remaining sum is financed through a mortgage.
The specific amount of upfront payment necessary is contingent upon the chosen mortgage type and the house’s price. A higher upfront payment generally results in a lower interest rate and monthly installment.
After accumulating sufficient funds for an initial payment and enhancing your credit rating, you are prepared to obtain a preliminary mortgage approval. This preliminary approval represents a written confirmation of the amount that a lender is willing to loan you for the purpose of buying a house. Additionally, it provides details regarding the interest rate and repayment conditions for which you meet the requirements.
Bottom Line
Based on my approximate calculations and considering the factors outlined earlier, an individual earning a $100,000 salary should consider searching for a residence within the price range of $320,000 to $450,000. Keep in consideration that in the current high-interest rate climate of 2024, an amount exceeding $300k may not have the same purchasing power it had when interest rates were below 4% in 2022.
The cost isn’t quite as high as you anticipated, correct? Fortunately, in most regions outside major urban centers, a budget of $300,000 to $450,000 can still stretch quite far and enable the purchase of an appealing starter home or a comfortable family residence.
Frequently Asked Questions
The 28/36 rule suggests spending 28% of your monthly income on housing costs and 36% on total debt payments, guiding your house’s affordability based on income and debt levels.
Your credit score impacts mortgage eligibility, interest rate, and loan amount. A higher score leads to lower rates and a larger loan, enabling a higher-priced house. Conversely, a lower score limits options and increases borrowing costs, potentially requiring a more affordable house.
Down payment requirements vary based on mortgage type and house price. Higher down payments yield lower interest rates and monthly payments. Typically, initial payments vary between 3% and 20% of the buying cost. For a $400,000 dwelling, initial payments may vary from $12,000 (3%) to $80,000 (20%) when utilizing a traditional loan.
