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When you make $50k a year, figuring out how much house you can afford means constructing a well-informed budget and having realistic expectations.
In some parts of the country, the reality is it may not be possible to buy a home on this income without a large down payment. And in a competitive market, you’ll likely need to have picture-perfect finances, compromise on location, and make some serious cuts to other parts of your budget.
In areas with more modest housing prices, though, an annual income of $50,000 can put a home well within reach if mortgage rates are low.
Here’s how much house you can afford on a $50k salary:
- How much house can I afford on $50k a year?
- Factors that determine how much house you can afford
- How to increase your homebuying budget on a $50k salary
How much house can I afford on $50k a year?
When drawing up a homebuying budget, consider following the “28/36 rule.”
The 28/36 rule breaks down like this:
- The first number (28%) is the maximum percentage of your pre-tax income you should spend on housing every month.
- The second number (36%) is the maximum percentage of your pre-tax income you should spend on total debt every month.
Lenders refer to these figures as your debt-to-income ratio (DTI). The first number is your front-end ratio; the second number is your back-end ratio. Lenders generally care more about the back-end DTI since it takes into account all of your debt. You’ll want to keep this figure below 36% to have the best chance at securing a mortgage.
On top of that, you’ll want to look to spend no more than $1,500 on your mortgage payment and other debts (36% of $4,167). For instance, if you have a $600 student loan payment, you’ll need to keep your housing payment to $900 in order to follow the 28/36 rule.
Getting pre-approved can help you determine how much you’re qualified to borrow.
Affordability scenarios on an income of $50k
Let’s look at a best-case scenario where your mortgage payment is your only debt and you have enough savings to make a 20% down payment at a few different price points. Remember, if you’re sticking to the 28/36 rule, you’ll want to spend more than $1,500 on housing costs.
For simplicity’s sake, we’ll assume a 30-year, fixed-rate loan with a principal and interest payment of $1,200 a month. This leaves you with $300 to allocate to other housing costs, like homeowners insurance and property taxes.
Here’s the housing price range you can shop in at different interest rates:
|Interest rate||Max loan amount||20% down payment||Home price you can afford|
If those down payments seem way out of reach for you, here’s another table showing your options with 3% down. In this scenario, we added $120 a month for private mortgage insurance (PMI), leaving you with $1,080 for your principal and interest.
|Interest rate||Max loan amount||3% down payment||Home price you can afford|
Using a mortgage calculator can help you determine your monthly payments. Take advantage of our mortgage payment calculator below to find out how much you might need to save and budget for before shopping for a home.
Enter your loan information to calculate how much you could pay
With a $ home loan, you will pay $ monthly and a total of $ in interest over the life of your loan. You will pay a total of $ over the life of the mortgage.
Learn More: How Much a $200,000 Mortgage Will Cost You
Factors that determine how much house you can afford
The tables above illustrate how different factors affect the amount of house you can buy. Let’s explain the math a bit:
- Annual salary: Having a higher annual salary will naturally increase your homebuying budget.
- Debt-to-income ratio: The previous tables assume a best-case scenario where you don’t have other monthly debt payments, like a student loan, credit card payment, or car loan. The more pre-existing debt you have, the less you can afford to spend on a home.
- Down payment: A larger down payment will allow you to buy a more expensive home or enjoy a lower monthly mortgage payment.
- Interest rate: The lower your mortgage rate, the more you can borrow and the more house you can buy.
Related: How to Buy a House in 2021: 8 Tips for Winning the COVID Homebuying Season
Homebuying costs to budget for
Costs like maintenance, repairs, and utilities aren’t considered in the 28/36 equation, so you’ll need to make room for them elsewhere in your budget.
In addition to your monthly principal and interest payment, here are some of the housing costs you’ll need to budget for:
- Closing costs: Budget 2% to 5% of the home’s purchase price for closing costs. Costs tend to be at the higher end of this range in states that charge real estate transfer taxes. Shopping around can help you get a better deal on closing costs, though you’ll sometimes pay a higher interest rate as a result, which isn’t always a good trade-off.
- Property taxes: Average effective property tax rates in 2019 ranged from 0.31% of home values in Hawaii to 2.13% in New Jersey according to the Tax Foundation, an independent tax policy nonprofit. Your local tax assessor can tell you about the property tax rates in your area.
- Homeowners insurance: Rates can vary from a few hundred dollars to a few thousand dollars per year depending on your state, ZIP code, property characteristics, and insurance company. Talk to local insurance agents to estimate how much you should budget for this expense.
- Mortgage insurance: If you put down less than 20%, you’ll probably have to pay for PMI. The cost depends on your loan type, down payment, and credit score. It can range from 0.17% of the loan amount to 1.86% of the loan amount.
- Maintenance and repairs: These costs can be highly unpredictable, and they’re likely to be higher in older homes and larger homes. Getting a home inspection before you buy can help you avoid a money pit. Set aside at least 1% of your home’s value per year for these costs, and roll over any savings from one year to the next.
- Utilities: Utility rates vary by location, but you’ll probably need to budget more for a more extreme climate, especially if the home you buy is not well-sealed and insulated.
- HOA fees: Some homes have no homeowners association fees, and some homes in communities with tons of amenities have HOA fees exceeding $1,000 per month. Look at local property listings to get an idea of what you’ll have to pay in your area.
How to increase your homebuying budget on a $50k salary
It’s certainly not impossible to buy a home on a $50k salary, and there are several ways you may be able to boost your budget to get closer to your goal:
- Increase your down payment: A larger down payment can make a big difference in how much house you can afford. When you put down less than 20%, you have to put part of your monthly budget toward PMI. That extra expense, combined with the smaller down payment, means your homebuying budget is a lot smaller, and you’ll pay more interest over the life of the loan.
- Pay down existing debt: When you reduce your debt-to-income ratio, a larger percentage of your income can go toward your housing payment.
- Cut expenses elsewhere: Lenders may allow a back-end ratio of up to 50%. In some parts of the country with expensive housing, going above the recommended 36% may be the only way to buy a home on a $50Kk annual income. To avoid getting in over your head, though, you’ll want to consider cutting other items from your budget.
- Look into first-time homebuyer programs: Grants, forgivable loans, low-interest loans, and payment-deferred loans are some of the options that can make ownership a reality for first-time homebuyers.
- Try an FHA loan or VA loan: Even though FHA and VA loans have upfront costs that conventional loans don’t, their monthly payments might be more affordable if you have less-than-stellar credit and a small down payment. FHA loans are available to anyone; VA loans are only for qualifying military service members.
- Improve your credit score: You can qualify for a conventional mortgage with a credit score as low as 620. However, your interest rate will be higher the lower your credit score is. Plus, if you’re required to pay PMI, your PMI will be more expensive. You can increase your homebuying budget by improving your credit score and avoiding these extra costs.
- Compromise on location and/or property type: Few of us can afford to buy our dream home in our dream location, no matter what our budget is. Common trade-offs include moving to the suburbs or exurbs, moving to a less expensive part of the country, or choosing a condo or townhome instead of a house.