Today’s housing market is tough for everyone, even on a $120,000 salary. Your income puts you in the upper half of American earners, well above the median household income of $74,580, per Census data. However, high mortgage rates and steep home prices are deterring many would-be homeowners, even high-earning ones. Read on to learn how much house you can afford if you’re making $120,000 per year.
The 28/36 rule
Scratching your head about how much house you can comfortably afford? Many experts recommend following the 28/36 rule, a guideline suggesting that you limit your monthly housing costs to no more than 28 percent of your monthly income, and your total debt payments — including housing expenses — to no more than 36 percent.
Let’s break that down. A $120,000 salary equates to $10,000 per month, and 28 percent of $10,000 is $2,800, so that should be your cap on monthly housing expenses. Bankrate’s mortgage calculator shows that, with a 20 percent down payment on a 30-year fixed-rate loan at 7 percent interest, the monthly principal and interest payment will be $2,501 on a home of $470,000. That leaves you some breathing room to add in variables like property taxes, homeowners insurance and HOA fees (if applicable) before reaching the $2,800 mark. So, assuming you have enough to cover that down payment plus more left over for upkeep and emergencies — and also assuming your other monthly debts don’t take you over that 36 percent figure —you should be able to afford a home of $470,000 on your salary.
How much house can you afford?
Income isn’t the only factor influencing how much house you can afford, though. Factors like your savings, credit score and desired location will all shape your homebuying power:
Savings and down payment
If you have a sizable chunk of savings, you’ll be at an advantage in the homebuying process. Mortgage lenders like to see that you have enough of a cushion to comfortably cover maintenance and unexpected repairs.
And the traditional down payment of 20 percent is not necessarily mandatory, but if you can put down at least that much you will reap several benefits. For one, you avoid paying private mortgage insurance premiums, which add to your monthly housing costs. In addition, the more you pay upfront, the less you have to borrow, which means lower payments and less interest paid over the life of the loan. It may also help snag you a more competitive interest rate than you would get with a smaller down payment.
Credit score and debt-to-income ratio
Your credit score is one of the most important parts of your mortgage application. Low scores cause lenders to view you as a risky borrower, and they’ll charge you a higher rate if your score is subpar. The higher your credit score, the better rate you’re likely to qualify for. Lenders will also scrutinize your debt-to-income ratio, or the percentage of your income that goes towards debt payments.
Location and amenities
A home budget of $470,000 means you’ll have options priced above the national median price, which was $407,100 as of August 2023. However, even this relatively high budget will stretch further in some areas than others. If you’d rather live in a mansion than a cramped condo, you’ll probably be out of luck in the nation’s priciest metro areas. For example, in Indianapolis, where Redfin data shows the median home price is about half of your budget at $240K, $470K will buy quite a lot, and probably with lots of upgrades and land too. But in San Diego, where the median is almost double at more than $930K? Probably not so much.
Home financing options
Getting preapproved for a mortgage is the best way to get a firm grasp on how much you can actually borrow. It can also be crucial in a competitive market, showing sellers who might have multiple offers that you are a serious, qualified buyer. Preapproval isn’t a formal commitment, so you’re not obligated to get your official mortgage through the same lender that preapproved you.
Different types of loans
There are many types of home loans, each with their own pros and cons. Some, like FHA loans, have lower minimum credit scores and down payment requirements. Even a conventional loan can be had for just 3 percent down if you qualify. However, given your high income, you could be ineligible for some options — and in the long run, it’s better to put down more if you can afford to.
First-time homebuyer programs
Saving for a down payment can feel especially daunting if you’re buying a home for the first time. Several national, state and local programs are available to help ease that financial burden, most of which provide grants and low-interest or forgivable loans. Eligibility for down payment assistance programs is usually income-based, so you may not qualify based on your $120,000 salary, but it’s worth checking.
Get started
In most parts of the country, a $120,000 annual salary can afford you a very comfortable, and even luxurious home. But mortgage rates are high, which hampers your buying power. So consider whether now is the righttime to buy a house, based on your current life and financial circ*mstances. How far will your budget stretch in your desired area right now? What’s next for you, your family and your job? If you decide to take the plunge, don’t do it alone: Work with an experienced local real estate agent who can help guide you to a great home at a price you feel good about.
FAQs
So, assuming you have enough to cover that down payment plus more left over for upkeep and emergencies — and also assuming your other monthly debts don't take you over that 36 percent figure — you should be able to afford a home of $470,000 on your salary.
How much house can a 120k salary afford? ›
Safe debt guidelines
So start by doing the math. If you make $50,000 a year, your total yearly housing costs should ideally be no more than $14,000, or $1,167 a month. If you make $120,000 a year, you can go up to $33,600 a year, or $2,800 a month—as long as your other debts don't push you beyond the 36 percent mark.
How much mortgage can I afford for a 125k salary? ›
Using NAR's 25 percent metric, at the current mortgage rate (6.66 percent in late March), “buyers earning $125,000 a year can purchase a home up to $510,000 if they put 20 percent down,” Evangelou says. “However, if they put 10 percent down, they can afford to purchase a home for up to $450,000.”
How much mortgage can I afford on a 115k salary? ›
The 28/36 rule
It's a standard guideline that states you should limit your monthly housing payment to no more than 28 percent of your monthly income, and your total debt payments — including that housing payment — to no more than 36 percent. If you earn $110,000 in gross income, that's approximately $9,166 each month.
How big of a house can I afford with 100k salary? ›
Your financial situation dictates the value of homes you can afford with a 100k salary. Generally, a mortgage between $350,000 to $500,000 is feasible. However, a person with low Credit might only qualify for a $300,000 mortgage, while someone with excellent credit might qualify for a $500,000 mortgage.
What income is needed for a 400k mortgage? ›
What income is required for a 400k mortgage? To afford a $400,000 house, borrowers need $55,600 in cash to put 10 percent down. With a 30-year mortgage, your monthly income should be at least $8200 and your monthly payments on existing debt should not exceed $981.
How much house can I afford with a 130k salary? ›
Applying the 28/36 rule, a $130,000 annual earner should keep housing costs below $3,033. However, there are many other factors besides just your income that shape how much house you can comfortably afford. Credit score: A strong credit score is important when you apply for a home loan.
How much is 125k a year hourly? ›
How much does a 125 000 make in California? As of Jun 15, 2024, the average hourly pay for a 125 000 in California is $24.77 an hour.
How much is 125k a year biweekly? ›
If you make $125,000 per year, your Biweekly salary would be $4,808. This result is obtained by multiplying your base salary by the amount of hours, week, and months you work in a year, assuming you work 40 hours a week.
What is the 28 36 rule? ›
According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.
If you follow the 2.5 times your income rule, you divide the cost of the home by 2.5 to determine how much money you need to earn annually to afford it. Based on this rule, you would need to earn $100,000 per year to comfortably purchase a $250,000 home.
How much house can I afford with a 140K salary? ›
Let's apply the 28/36 rule to your $140K salary to see how much you should be spending on housing costs: $140,000 / 12 = $11,667 (gross monthly income) $11,667 x 0.28 = $3,267 (the most you should spend on housing costs each month) $11,667 x 0.36 = $4,200 (the most you should spend on total debt each month)
How much house for $3,500 a month? ›
A $3,500 per month mortgage in the United States, based on our calculations, will put you in an above-average price range in many cities, or let you at least get a foot in the door in high cost of living areas. That price point is $550,000.
What house can I afford with a 120k salary? ›
So, assuming you have enough to cover that down payment plus more left over for upkeep and emergencies — and also assuming your other monthly debts don't take you over that 36 percent figure — you should be able to afford a home of $470,000 on your salary.
How much house can I afford making 125k a year? ›
They also like to see total housing costs of less than 30%. Therefore, he advises using the 28/36 rule, which allocates 28% of your gross monthly income for your mortgage payment and 36% for your non-housing debt. 28% of $125,000 is $35,000. Divided by 12, that's $2,916 per month for your mortgage.
Is 100K still a good salary? ›
There are no state or local income taxes, and a 12% discount on cost of living relative to the average across the U.S. mean it goes a long way. In San Francisco, Los Angeles, San Diego, and Oakland, all in California, a $100,000 salary is effectively halved, in terms of what it can afford.
How much house can I afford on a 150k salary? ›
$150k income should be able get you a $700k mortgage with that $350k down on a $1M property. There are a handful of 3bd/2ba homes in Pasadena for less than $1M. A $700k mortgage with $300k down on a $1M property will cost you about $3k in mortgage and interest with a fixed 30 year.
How much income do I need for a 500k mortgage? ›
In today's climate, the income required to purchase a $500,000 home varies greatly based on personal finances, down payment amount, and interest rate. However, assuming a market rate of 7% and a 10% down payment, your household income would need to be about $128,000 to afford a $500,000 home.
How much is 120K a year salary? ›
How much does a 120K make? As of Jun 15, 2024, the average annual pay for a 120K in the United States is $118,573 a year. Just in case you need a simple salary calculator, that works out to be approximately $57.01 an hour. This is the equivalent of $2,280/week or $9,881/month.
How much income do you need for a million dollar house? ›
Income Necessary for a $1 Million Home (California)
| 3.5% DOWN FHA FINANCING: | $230,000 per year** |
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| 15% DOWN CONVENTIONAL FINANCING: | $200,000 per year** |
| 20% DOWN CONVENTIONAL FINANCING: | $185,000 per year** |
Aug 5, 2022
