You can afford a home up to: $350,736 Show Monthly payment: $2,250 Debt-to-income ratio 36% Affordable Stretching Aggressive *Debt-to-income affects how much you can borrow The debt-to-income ratio (DTI) is your minimum monthly debt divided by your gross monthly income. The lower your DTI, the more you can borrow and the more options you’ll have.
The above estimates do not include amounts for: (1) private mortgage insurance (PMI), which may be required if your down payment is less than 20%; (2) mortgage insurance premiums (MIP), which may be required for FHA-insured loans; or (3) homeowner’s insurance. These costs may be significant and may affect your affordability, debt-to-income ratio or monthly payment. How much house can I afford?To know how much house you can afford, an affordability calculator can help. Getting pre-approved for a loan can help you find out how much you’re qualified to borrow. But remember that when it comes to affordability, the amount a lender will lend you and the amount you can comfortably pay without stretching your budget too thin could be very different. One influential factor in determining the amount of money you can borrow on a home loan is your debt-to-income (DTI) ratio. It is recommended that your DTI should be less than 36% to ensure that you have some padding on your monthly spend. A good DTI greatly impacts your ability to get pre-qualified for a mortgage. Ultimately, you have the final say in what you’re comfortable spending on a home. A lender’s assessment is important, but in the end, you’ll need to take a look at your income, expenses and savings priorities to truly understand what fits comfortably within your budget. Affordability GuidelinesWhile every person’s situation is different (and some loans may have different guidelines), here are the generally recommended guidelines based on your gross monthly income (that’s before taxes): Your mortgage payment should be 28% or less.
Factors that affect your affordabilityHow much you can afford to spend on a home depends on several factors, including these primary factors: you and your co-borrower’s annual income, down payment, and location (which is a primary factor in determining your interest rate and property tax). IncomeThis one’s a no-brainer. Income should include your co-borrower’s income if you’re buying the home together. DebtsYour debts directly affect your affordability, since it’s based on the ratio between what you earn (income) and what you owe (debts). InterestBelieve it or not, the interest rate you pay can make a big difference in how much home you can afford. Rates vary based on your location, which can affect your affordability. Credit scoreYour credit score plays a big role in the interest rate you’ll get for your loan. Down paymentYour down payment plays a big part in your affordability. The more you put down, the lower your monthly payment will be. SavingsHomeownership comes with costs that rentals do not. So remember to put extra money away for repairs and maintenance.
Whether you’re looking to buy a fixer-upper house or a brand new home, there’s one essential question you must ask yourself before going forward with the real estate transaction. Can I afford it? In this blog, we’ll specifically answer your question, “How much house can I afford on 120k salary”? Well, the answer lies in your annual income and overall financial situation. Let’s explore how you can evaluate your affordability based on some important factors. How much mortgage payment can you afford?To find out how much house you can afford, you need to consider your household income, monthly debts for any loan type, and the amount of savings you have ready for a down payment. We’ll explore these factors in detail in the next section. The bottom line is, you need to fully understand your monthly mortgage payments and the mortgage rates for a particular loan amount you’re planning to take. Apply for a loan only if and when you get a mortgage you can afford. Read more: Why realtors dont like VA loans Key factors determining ‘how much house can I afford on 120k salary?’Here are the game-changers that will finally determine your affordability.
28%/36% rule of affordabilityHere’s a rule of thumb you should follow to determine the kind of house you can comfortably afford to buy:
Keeping the 28/36 rule in mind, a prospective homeowner with a $120,000 income may be able to afford a $1 million home on a 30-year fixed mortgage. That is to say, they could spend up to $33,600 per year on a mortgage. Of course, the exact amount depends on the debt load and all the income sources. And also on the down payment or the opportunity to refinance down the road. This kind of budget can get a buyer a variety of housing depending on the preferred location or neighborhood, the housing market trend there, and the median home price in that particular area. Affordability guidelines: Key takeawaysWhile everyone may have different financial obligations and loan criteria, loan experts agree on some general guidelines of affordability.
The above factors will contribute the most in determining the kind of home you can afford. And, to support your estimations further, you can also double-check with any reliable affordability (how much can I afford) calculator available online. We’re sure now you know the answer to, “How much house can I afford on 120k salary”? Keeping the guidelines in mind, you can now do the calculations and find out the answer yourself. Simple, isn’t it? Read more: The best time to buy a house
Written by Ramona Sinha. April 6, 2022 Ramona is a content writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. An avid traveler, she’s a digital nomad at heart and an animal lover from the depths of her soul. |