Buying a home is a significant financial commitment, and your salary plays a key role in determining how much house you can afford. Lenders have specific rules tying your mortgage to your income and debts, but it’s also essential to consider guidelines that align with your personal budget. Here’s everything you need to know about answering the question: How far will your salary get you when buying a house?

Calculating a Comfortable Mortgage Payment

Several rules of thumb can help you determine the ideal mortgage payment. These guidelines balance what lenders approve and what you can afford without financial strain.

28% Rule

This rule states that your monthly mortgage payment, including principal, interest, taxes, and insurance, should not exceed 28% of your gross monthly income.

• Example: If you earn $100,000 annually, your monthly gross income is $8,333. Following the 28% rule, your maximum mortgage payment would be about $2,333.

28/36 Rule

The 28/36 rule suggests limiting your total debt payments—including your mortgage, credit cards, and loans—to 36% of your gross income.

• Example: If your gross monthly income is $8,333, total debt payments should not exceed $3,000. If you have $1,000 in other monthly debt payments, your mortgage should be capped at $2,000.

35/45 Rule

This rule combines gross and net income to give a range for your debt obligations. Total debt should not exceed 35% of your gross income or 45% of your net (after-tax) income.

• Example: If your gross monthly income is $8,333, your maximum debt load is $2,917. For after-tax income of $7,000, it’s $3,150.

25% Post-Tax Rule

This conservative approach caps your mortgage payment at 25% of your take-home pay.

• Example: With a $7,000 monthly net income, you’d keep your mortgage payment at or below $1,750.

How Lenders Assess Your Mortgage Affordability

Lenders evaluate various factors to determine how far your salary will go when buying a house. These include:

• Debt-to-Income Ratio (DTI): Many lenders allow a DTI of up to 45% for a conventional loan.
• Credit Score: A higher score may qualify you for better interest rates.
• Down Payment: A larger down payment reduces the loan amount and monthly payments.
• Loan Type: Different programs have varying income and credit requirements.

Lowering Monthly Mortgage Payments

If your mortgage payments are higher than you’d like, consider these strategies:

Increase Your Down Payment

A larger down payment reduces the loan amount and may eliminate private mortgage insurance (PMI), lowering your monthly costs.

Improve Your Credit Score

Higher credit scores qualify for lower interest rates. Pay down debt and fix errors on your credit report to boost your score.

Shop Around for Lenders

Mortgage rates and terms vary. Comparing offers from multiple lenders can help you secure better terms.

Opt for an Adjustable-Rate Mortgage (ARM)

ARMs offer lower initial interest rates than fixed-rate loans. This could be a good option if you plan to sell or refinance before the rate adjusts.

Buy Down the Interest Rate

You can prepay interest by purchasing discount points, which lowers your rate and monthly payment over time.

Additional Costs of Homeownership

When planning your budget, factor in costs beyond the mortgage payment. These include:

Property Taxes

Taxes vary by location and are usually included in your monthly payment through an escrow account.

Homeowners Insurance

Lenders require coverage to protect the home and its contents. Shop around to save on premiums.

Maintenance and Repairs

Set aside 1% to 4% of your home’s value annually for maintenance. Unexpected repairs can be costly.

HOA Fees and Utilities

If your home is in a community with a homeowners association (HOA), you’ll have monthly fees. Utilities and yard maintenance also add up.

Strengthen Your Credit Before Applying

Your credit score significantly affects how far your salary gets you when buying a house. A higher score means lower interest rates and better terms.

• Start by reviewing your credit report for errors.
• Pay down high-interest debt.
• Stay current on bills to avoid late payments.

The Bottom Line

Understanding how far your salary will get you when buying a house depends on balancing your income, debts, and lifestyle goals. Use the guidelines above to set a realistic budget and explore ways to lower monthly payments. Taking steps to improve your credit and shop for the best mortgage rates can help you afford a home that fits your needs while maintaining financial stability.

If you ever need expert assistance or guidance on your credit journey, don’t hesitate to reach out to the Nerds! Additionally, stay updated with the latest tips and information by following us on Facebook, Instagram and TikTok!