When it comes to purchasing a home, everyone has different needs and budgets. In spite of this, all home buyers have one thing in common: they want to know how much house they can afford before making an offer.
Your salary is just one factor that affects how much house you can afford.
As a general rule, your monthly mortgage payment should not exceed 28 percent of your household income. For example, if you earn $100,000 per year before taxes, your monthly mortgage payment should not exceed $2800. Different lenders will have their own requirements, so some may ask for a maximum of 32% or even 40% of your monthly earnings for your total monthly expenses, including your mortgage.
Other factors include:
Length of Employment
There is a correlation between the length of time you have worked at your current job and your chances of getting approved for a loan. Most mortgage applications will require at least a two-year history of employment.
Your Credit Score
There is a great deal of importance placed on your credit score when it comes to getting the best rate. Do you pay your bills on time? Are your credit card balances low? Are you late with any payments?
Your Down Payment
Is a 375k house on a $100k salary doable Yes, based on the information provide using Bank of America’s Home Affordability Calculator
A 30-year fixed rate loan based on a $373,347 estimated home price would result in a monthly mortgage payment of $2,331 assuming a 6.000% interest rate, 6.130% APR and a 20% down payment of $74,670.
According to the factors discussed above, you could afford a home between $350,000 and $500,000; however, the final decision will depend on your credit rating, employment history, savings, and other debts. However, there are a few additional things you need to be aware of.
Cash Reserves
You will need money to pay the closing costs of your home, even if your lender doesn’t require cash reserves. Irrespective of the requirement, you will need money to pay upfront closing costs. You should expect to pay 2 to 5% of the house’s value at closing.
Closing Costs
Unless you have taken into account closing costs when determining the amount of cash you can contribute to your down payment, you may not be able to afford the home you are seeking to purchase. Also, incorporating your closing costs into your financing can affect the size of the mortgage you can afford.
Property Taxes
Taking into consideration property taxes is essential before determining how much house you can afford to buy on your salary. Check with a local real estate agent or visit the county assessor’s website to get a sense of what you would owe on an annual basis.
