Building your home

If I make $140,000 a year, how much house can I afford?

If you’re earning $140,000 annually, you’re in a strong position to embark on your homebuying journey. With double the national median household income, finding a mortgage and a suitable home within your budget shouldn’t be too challenging. However, it’s essential to be mindful of lifestyle inflation and ensure that your spending aligns with your earnings. In this blog post, we’ll explore the 28/36 rule, which experts use to assess affordability, and guide you on how to determine how much house you can afford with a $140K salary.

The 28/36 Rule:

The 28/36 rule is a straightforward set of calculations used by financial experts to evaluate affordability. According to this guideline, no more than 28 percent of your gross income should be allocated to housing payments each month, and no more than 36 percent should go towards your total debt, including housing costs, car payments, student loans, and credit card bills.

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To apply the 28/36 rule to your $140,000 salary, follow these steps:

  1. Calculate your gross monthly income: $140,000 / 12 = $11,667.
  2. Determine the maximum you should spend on housing costs each month: $11,667 x 0.28 = $3,267.
  3. Find out the most you should allocate to total debt each month: $11,667 x 0.36 = $4,200.
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How Much House Can You Afford?

Let’s use Bankrate’s mortgage calculator to get an idea of the purchase price you can consider:

  • Hypothetical Home: $500,000
  • Down Payment: 20% ($100,000)
  • Loan Term: 30 years
  • Interest Rate: 7.5%

According to the calculator, your monthly principal and interest payments would be approximately $2,796. This leaves you with a few hundred dollars for home insurance premiums and property taxes, depending on your location, before reaching the $3,267 cap.

Keep in mind that this calculation does not include upfront expenditures like the down payment and closing costs.

Additional Factors to Consider:

  1. Credit Score: A higher credit score can secure you a better interest rate, resulting in significant savings over the life of the loan.
  2. Debt-to-Income Ratio (DTI): This metric measures how your debt obligations compare to your income. Staying below 36 is generally advisable, though some lenders may allow a higher DTI.
  3. Down Payment: While 20% is often recommended, some loans require as little as 3%. A larger down payment means borrowing less and potentially lower monthly payments.
  4. Desired Location: Consider the cost of living in your desired area, including groceries, transportation, and entertainment, to ensure it aligns with your budget.

Home Financing Options:

Since you might not have the full purchase amount readily available, exploring home financing options is crucial. Getting preapproved for a mortgage can give you a clear idea of the loan size you’re likely to qualify for, streamlining your home search.

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Different types of loans cater to various needs, so it’s essential to explore your options with a knowledgeable loan officer or mortgage broker. With a $140,000 salary, you’ll likely be considering a conventional loan.

Conclusion:

When you’re ready to dive into the homebuying market, partnering with an experienced real estate professional in your desired area is invaluable. They can provide valuable insights and help you find homes that align with your needs and budget. Take the time to interview a few candidates before making your choice.

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