A $100K salary puts you in a good position to buy a home
One of the first questions you ask when you want to buy a home is
With a $100,000 salary, you have a shot at a great homebuying budget.
But to qualify for the lowest mortgage rates — and therefore the biggest loan amount — you also need a strong credit score, low debts, and a decent down payment.
With all these factors $100K of income per year, most doors in the mortgage world will be open to you.
Find out how much house you qualify for (Oct 5th, 2020)In this article (Skip to…)
- Home buying with a $100K salary: Examples
- Factors that determine how much house you can afford
- Tips for buying a house on a $100K salary
- Pre-approval confirms your home buying budget
Home buying examples: See you much you can afford on $100K per year
The amount you can borrow for a mortgage depends on many variables — and income is just one of them.
That means two people who each make $100,000 per year, but have different credit scores, debt levels, and savings, could have vastly different home buying budgets.
Here are a few examples of how much home someone might afford on a $100K salary when those other requirements are factored in.
Buying a house with a $100K salary and low credit
First, let’s look at an example of a homebuyer who makes $100,000 per year, but has a lower credit score and relatively high debts.
This could be someone who recently graduated with student loans and hasn’t had a chance to build up their credit yet. Or, someone who has existing debt from a few different lines of credit — like credit cards and an auto loan.
Whatever the case, a lower credit score and higher debts mean your home buying budget will be on the lower end of the spectrum.
$100K salary and low credit buys a home below $300K
- Income: $100,000/year
- Credit score: 650
- Down payment: 5%
- Debts: $1,000 a month
- Interest rate: 4.5%*
- Estimated home value: $288,500
This borrower makes a $100k salary and has a 650 credit score.
They are looking for an FHA mortgage with a low down payment. And, they owe about $1,000 in non-mortgage debts each month.
Assuming that the lender offers a 4.5% interest rate — which is higher than current averages because of their credit score and debts — this borrower may be able to buy a $288,500 home.
Buying a house with a $100K salary and good credit
Our second borrower also makes $100k a year.
But this person’s credit score is 700, and they only pay $250 in non-mortgage debts each month. They’re also able to put down 15% on the house.
Based on these factors, they may receive a lower interest rate — perhaps 3.5% — and qualify for a home that costs up to $561,000.
$100K salary and good credit buys a home above $500K
- Income: $100,000/year
- Credit score: 700
- Down payment: 15%
- Debts: $250 a month
- Interest rate: 3.5%*
- Estimated home value: $561,000
Buying a house with a $100K salary and great credit
The third borrower has an excellent credit score of 760. This person also has no debts and is prepared to put down 20% on the home.
Like the first two home buyers, they earn $100k a year. But they’ve received an interest rate of 3.25%, and their potential mortgage amount is roughly $721,000.
$100K salary and great credit buys a home above $700K
- Income: $100,000/year
- Credit score: 760
- Down payment: 20%
- Debts: $0 a month
- Interest rate: 3.25%*
- Estimated home value: $721,000
Keep in mind that each of these scenarios assumes a homeowners insurance rate of $1,200 a year, which is the U.S. average, along with a 0.78% tax rate.
All loan amounts were calculated using The Mortgage Reports’ mortgage calculator.
Your own budget will vary based on your actual mortgage rate, insurance rates, local property taxes, homeowners association (HOA) fees, private mortgage insurance, and other factors.
But you can see that a high credit score, low DTI, and big down payment substantially increase the amount of home you can afford on a $100k salary.
Find out how much home you qualify for (Oct 5th, 2020)Factors that determine how much house you can afford
Income is an important factor when you apply for a mortgage.
If you make a $100k salary annually, lenders will weigh that heavily in your mortgage application.
It indicates that you likely have the income needed to cover a decently-sized mortgage payment.
However, lenders don’t just look at income when they qualify you for a home loan. They also look at:
- The property you’re buying
- Your credit score and report
- Your debt-to-income ratio (DTI)
- Your loan-to-value ratio (LTV)
Here’s what each of these factors mean to a lender.
Credit score and debts
Lenders want to see that you have a history of good credit management and on-time payments, and that you’re not paying too many other debts on top of a mortgage.
To get the best mortgage rate, aim for a credit score of 720 or higher and a DTI ratio below 36%.
These indicators show that you’re a responsible borrower who’s not likely to default on their mortgage loan.
Down payment and LTV
In addition, lenders consider your down payment and LTV when deciding which mortgage programs you qualify for and how low of a rate you’ll get.
To get the best mortgage rate, aim for a down payment of 20%. Although it’s not required, a bigger down payment lowers your rate and increases your home buying power.
The higher your down payment is, the less risk the lender takes on since you’ll be asking for less money. This means a lower rate and bigger home buying budget.
LTV is a similar metric, which measures how much you’re borrowing vs. how much the home is actually worth.
The size of your down payment directly impacts LTV, since the more you put down, the less you need to borrow.
Low down payments are always an option
A “prime borrower,” in a lender’s eyes, would have a credit score above 720, a debt-to-income ratio below 36%, and a down payment of 20% to accompany their $100,000 salary.
However, these things are by no means required.
You can get a great mortgage with less money down. Most lenders offer low- or no-down-payment mortgages.
And, it’s possible to buy a house with a credit score starting at 580 and DTI as high as 50%, in some cases.
But each of these elements will determine how much you can borrow.
What you need to know about buying a house on a $100k salary
Not only does your salary affect how much you can borrow in a mortgage, it also impacts the types of loans you can take out.
Income limits on mortgage programs
Some programs, such as the zero-down USDA mortgage, have income limits on who can qualify.
In most parts of the country, income cannot be more than $86,850 to take out a USDA loan. But in areas with high home values, that limit increases to $212,550.
Note that these limits apply to household income, not just that of the borrower. If you earn $50,000 a year and your spouse earns $40,000, you’d be disqualified from the USDA program because your combined income exceeds $86,850.
Fannie Mae’s HomeReady loan and Freddie Mac’s Home possible loan — both of which allow 3% down — also enforce income limits.
Income limits for down payment assistance
Earning $100k a year can also put you out of bounds for some down payment assistance (DPA) programs.
There are many DPA programs across the country, including at the state and local level, so eligibility criteria varies from place to place.
But some programs cap assistance at a certain income threshold. So if you were counting on DPA to help you buy a home, make sure you know the requirements before factoring that into your plan.
There are loan limits to consider, too
One final word on limits. Even if you apply for a conventional loan that doesn’t have income limits, your home’s value cannot exceed a certain amount of money — known as conforming loan limits.
These limits are set annually by the federal government. Mortgages that exceed these limits are considered ‘jumbo mortgages‘ and are not government-guaranteed.
The conforming loan limit in most U.S. counties for 2020 is $510,400, though it can increase to $765,600 in high-cost areas.
Mortgage pre-approval confirms your home buying budget
It’s a good idea to figure out how much home you can afford before you start shopping so that you avoid falling in love with a property you won’t be able to buy.
In addition to getting an estimate through an online mortgage calculator, you can apply for preapproval with a lender to get a better idea of what they might offer you.
That allows you to search for homes in your price range, and it reassures your real estate agent and sellers that you’re in the right ballpark when you’re touring homes.
You can get started by requesting today’s rates from top lenders.
Verify your new rate (Oct 5th, 2020)
