How Much House Can I Afford with a 120k Salary
According to the Federal Reserve Bank of St. Louis, the median home sales price in the US is $436,800. But as we walk through below, even if you're making $120k a year and can make a $15k down payment, your home-affordability could range from $265k to nearly $400k (based on several factors specific to your situation). Maximizing your home affordability isn’t only about your income or the size of your down payment – it depends on your specific location, your existing debts, market rates, your financial goals, and more. If you want to get straight to business, try our full-blown homebuying service that automatically evaluates your situation and gives you clear, personalized directions on improving your home-buying power. You can also try our free-to-use home-affordability calculator. If you want to learn the ins-and-outs of home affordability, keep reading.
Let’s walk through a couple examples. For both of these examples, let’s assume our potential homebuyer has an annual salary of $120,000, available savings of $15,000, a good credit score (700-739), and existing debt obligations (car payments, student loans, credit card payments) of $1,500 per month.
The first homebuyer is shopping for a home in Austin, TX. The second is shopping for a home in Boston, MA.
How much House Can You Afford with a 120k Salary in Austin, TX
How much House Can You Afford with a 120k Salary in Boston, MA
Remember, these numbers are purely hypotheticals, and how much house you can afford with a 120k salary depends on a lot of variables other than the amount of cash you earn each month - a big factor is your existing monthly debt payments and another is the amount of cash you have saved up. Maximizing your home affordability is all about acquiring the right knowledge and tools, and that’s what we're here for. Our calculators take care of the hard work for you.
Let's dive deeper into the inner workings of our “how much house can I afford” calculator to understand how it helps you navigate the home-buying process more efficiently.
Important Factors to Consider When Shopping for a New Home:
Debt-to-Income Ratio (DTI): Your DTI is a significant determinant of the mortgage you can qualify for. This ratio is calculated by dividing your monthly debt payments by your monthly gross income. Depending on your credit score, DTI can reach up to 50%, and many lenders are willing to accept higher ratios, provided you have a stable income and a better credit score So, if you make $120,000 a year (roughly $10,000 a month), you'd ideally want your total monthly debt obligations including your prospective mortgage to be less than $3,600.
Down Payment: The size of your initial down payment significantly influences how much house you can afford. If you've already qualified for a certain mortgage amount, having more cash on hand allows you to afford a more expensive home. For the same house price, a larger down payment results in a lower mortgage rate, which in turn leads to smaller monthly payments. This change greatly impacts your borrowing capacity and your debt-to-income (DTI) ratio.
Credit Score: A high credit score unlocks lower interest rates, meaning lower monthly payments and less of your money going towards interest (which compensates lenders for giving you money). For instance, on a $240,000, 30-year mortgage, a drop from a 4% to a 3% interest rate could save you around $50,000 over the life of the loan.
Interest Rates: Speaking of interest rates, the current market rates can drastically impact the total cost of your loan. A fraction of a percentage can equate to tens of thousands of dollars over the life of your loan, affecting the type and price of the home you can afford.
Loan Term: A shorter loan term (say, 15 years) will have higher monthly payments but lower interest over the life of the loan. Conversely, a longer-term loan (like 30 years) will have smaller monthly payments but more interest accrued over time. Your choice would depend on your financial comfort with monthly payments. Remember, just because you qualify for a certain amount doesn't mean you need to borrow that much. Always factor in other life goals, emergency funds, and lifestyle choices. It's all about balance.
While shopping for a new home, you’ve likely asked yourself one of the following questions: What is the best way to optimize my finances? How do I know if I’m overpaying for my mortgage? Where can I find the lowest prices for new mortgage loans and optimize my mortgage choice? How can I lower my debt to income ratio? With questions like these swarming your mind, you might feel like you're yearning for some unbiased personal financial advice.
Today, the finance world is saturated with resources, but it's challenging to differentiate between clickbait articles and legitimate financial guides aiming to help you effectively manage your debts and optimize your finances. If you’re looking for a personalized answer to “how much house can I afford with a 120k salary,” you’re in the right place. We provide unbiased financial advice that works for you, including free tools to get you started, and affordable, customized advice tailored to your needs. To explore different scenarios and get personalized debt advice, use the latest financial advisor technology tools like our Debt Optimizer to optimize your home-buying power, or our free Home Affordability Calculator to explore the best strategies for your financial goals.