How Much House Can You Afford On A 100k Salary?

Certified Mortgage Advisor
NMLS 1701021
December 17, 2019

100k, what can we afford?

Now, we're going to talk about how much house you can afford on an income of a hundred thousand dollars per year. So a hundred thousand dollars per year six figure salary is a total of one of the most coveted income figures that a lot of people hit in their lifetime.

So how much exactly can you forward with a hundred thousand dollars? In a second here, but just a quick aside, if you're not making a hundred thousand, that's fine. Your income goal should be based on what your budget is. A lot of times people shoot for this six figure salary, just because it hit six figures, just because it feels different.

The goal is to be happy

Don't create this milestone, this fictional finalism, as my therapist likes to call it. And work all towards this goal, but that goal really means nothing to you. When it actually comes down to the tangible thing of what that means, it doesn't actually mean anything. Your income goal that you have should be based on the budget that you have.

So what are your expenses? What kind of income do you need to live the lifestyle that you want to live? Something that's coming. Actually makes you happy, not just having money for the sake of having money or hitting six figures for the sake of saying you made six figures, who cares. You're going to impress a couple of people and that's about it. What really matters is your happiness and hitting six figures is not going to create that happiness for you.

Monthly Payment

Now, let's dive into how much you can afford on $100,000. So it's difficult to get a price point exactly from a salary. So what we first have to do is figure out a monthly payment. A monthly payment is what's going to help you determine what kind of purchase price of a home that you can buy.

The reason why the monthly payment is going to drive everything is because number one is going to drive how much you qualify for, but it's also going to be the determining factor for other things that are happening because your monthly payment is going to include things that are going to vary all over the country.

Things included in your monthly payment

So things like taxes, if there's a homeowners association, things like your down payment, it's going to vary a lot depending on where you live and you might live in a different market than I live in. The market that I live in, the median price is $143,000. Your market might be more expensive, might be less expensive.

How do we compute?

So first what we have to do is take the income and break that down into the monthly gross income. So $100,000, divided by 12 months gives us $8,333 per month in gross income. So we're always working off of gross income, never work off of net pay gross income only, that's what lenders use.

Debt-to-Income Ratio

Then what we're going to do is we're going to use a debt to income ratio of 43%. So a debt to income ratio is just saying all of your monthly debts, plus your estimated monthly housing payment, so what you pay in principal, interest taxes, insurance and homeowners association. So there's a bit in there, What is that debt divided by your total gross monthly income.

That gives us a percentage of debt being used by your income. And we're going to use 43. It's a good middle ground. Your lender or program you use might be lower and might have a lower debt to income ceiling, or might have a higher debt to income ceiling. But 43 is going to be a pretty good marker for us.

So 43% as our DTI. So what we'll do is we'll take whatever our max DTI is minus debts, and that's going to give us our maximum monthly payment. So what we can do is we're going to take 8,333 we're going to multiply that to 0.43. So that basically is telling us with a $100,000 income. The max debt we should have is about $3,583 per month, now that's quite a bit. Lenders sometimes we'll even go higher on that ceiling.

What are debt payments

So this is saying in minimum monthly debt payments. Debt payments are only things like auto loans, student loans, any credit cards. Basically anything that is a revolving or an installment line of credit, it will never be utilities. It will never be phone bills, unless you have your phone on the lease or some sort of debt installment program like that.

Let's have a sample computation

So we take our max DTI. Then what we're going to do is we're going to subtract our debts. With our debt, let's say that we have a $300 auto loan and maybe a $250 credit card. These numbers are only based on what you pay minimum monthly. They're not based on if you pay any extra, that's not calculated into this. It's only the minimum monthly payment, because that's what's going to show up on your credit report.

So from here we have $550 per month in debt payments. So what we'll do is we'll take 3,583 minus 550. That is going to give us a max monthly housing payment of $3,033 per month. That will include your principal, your interest, taxes, insurance, both homeowners insurance, and flood insurance if you need any, and any homeowners association dues if you have those as well. What we now have is this golden number. This is the max housing payment that we should have with everything included.

Purchase price

Now from here is where we can start to play around with some numbers to figure out what's the purchase price that we can afford, because there's, again, a lot of factors that go into this. If taxes in your area are upwards of $500- $700 per month. Then that's going to change how much house you can get compared to if your taxes are $200 to $300 a month because you have some of that wiggle room and taxes or you might have some of that room in a homeowner's association that could change your purchase price.

If taxes are higher, you're going to be able to afford a less mortgage. But if taxes are lower, you'll be able to afford more of a mortgage. So it's something to keep in mind, same with homeowners association and your down payment. If you put a lot of money down, that's going to reduce your monthly payment, meaning you can afford a larger house. If you put less down that means you're going to go a little bit lower on your purchase price.

Online Calculator

So really the best way to figure out how much you can purchase with a hundred thousand dollars salary. Once you figure out your max monthly payment you're going to want to play around with some numbers. And the best way to do that really is through just an online calculator, because you can scroll, move down payments, change things around to find the numbers that work for you. So let's go ahead and jump over to this calculator and we'll be able to dig in a little bit more into the purchase price that is driven by this monthly payment.

Smart Assets Calculator walkthrough

So right now I'm on Smart Assets - How much house can I afford calculator. Here I put in an annual income of a hundred thousand dollars with a down payment of $50,000. Your down payment is going to vary, usually a good rule of thumb is to put around 10 to 20% down. That's going to give you the most monthly savings in the best interest savings long term. But you might find some programs that go lower.

For instance, conventional can go down to anywhere from three to 5%, FHA loans can go down to 3.5%. If you're using VA or USDA, it's going to go down to a whopping 0%. So here's how you can play around with this calculator. So you can put it in your Google location to get an idea of taxes and different things like that.

We're going to stick with a hundred thousand dollars annual income, and you can also put in your monthly debt. So I can come over here and put in from our example, $550 per month.

Put in an estimated credit score. That's going to change the estimated rate that they're going to pull. So this is going to say you can afford $413,000. Why? Based on a hundred thousand dollar annual income, we believe you can comfortably afford a total monthly payment of $2,420. Now they're going more conservative than we did. They're actually showing about a $600 less monthly payment than we are. And again, it depends on what you're comfortable with and the programs your lenders are going to give to you.

This calculator I've found is more on the conservative. But you might have a lender who is willing to go up higher. You'll just have to ask around and find what that's going to look like when you get pre-qualified. So they're going off of a 36% instead of a 43%.

You can adjust your down payment

Again, it's completely up to you and this is going to change with our down payment. If I move our down payment, we take our down payment and move it up. Let's say a hundred thousand dollars. Now the home we can afford jumps up to $488,000.If I take our down payment and I move it down to $20,000, we can see, we dropped almost 90 grand in what we are able to afford with our purchase. What you can do is play around with this calculator and find what's going to work for you, what won't work for you and just get an idea of what that play is going to look like.

Yes, it's depending on your area

So all in all, it really depends on your area. Anytime I see somebody in our area who has a hundred thousand dollars salary they're normally going to purchase a home somewhere around the two to three 50 range. The reason why is that's just most of the upper end homes in our area. You might be in an area where a hundred thousand dollars is not as much as it is in Ohio. And so people might be purchasing more expensive homes with a hundred thousand dollars. It depends on how much of a down payment you have, or if you're selling your home and moving to a new home, if you're transferring any equity.

Everything is based on your budget

All in all, no matter what income you have, everything is going to be based on your monthly payment. Everything you do should be based off of the budget that you have, not off of some golden number that you have for an income or a purchase price. Even though you might have a purchase price range that you're looking at for homes that you want to have based on your monthly income, that's going to make sure that you move forward. You're going to have a really solid plan in action.

Stepping stone approach

If you can't afford the house that you want right now, work on those stepping stone approach. The stepping stone approach is saying, we can't afford this house right now, so let's backtrack. Let's find a house we can't afford. Let's build equity and appreciation. Let's pay down the mortgage to get appreciation in the property. Then we can transfer that equity to a bigger house through a down payment.

What works and make you happy

So I hope this gives you some answers. If you are on a hundred thousand dollars salary, if you're not. Play to your budget, find something that works for you and ultimately find the things that make you happy instead of just striving for a goal that isn't going to guarantee that.

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