How Much House Can I Afford? A Data-Driven Guide for 2024

Determining how much house you can afford requires analyzing your income, debts, and savings against established lending guidelines. Based on our experience assessment, your total monthly housing costs should not exceed 28% of your gross monthly income, while your total debt-to-income ratio (DTI) should stay at or below 36%. For a household earning $100,000 annually, this typically translates to an affordable home price range up to $319,100 with a conventional loan, though this varies significantly based on your down payment and loan type.

How Do I Calculate My Homebuying Budget?

The most effective first step is to use a home affordability calculator. This tool estimates your purchasing power by analyzing three key factors: your total annual household income, your total monthly debt obligations, and the funds you have available for a down payment and closing costs.

• Annual Income: This is your gross income before taxes and deductions, typically found on a W-2 form. Include all sources like salary, tips, and commissions for everyone contributing to the mortgage.
• Monthly Debts: This is the sum of all recurring monthly loan payments, such as car loans, student loans, and minimum credit card payments. It does not include variable living expenses like groceries or utilities.
• Available Funds: This includes money from savings accounts, investments, or gifts intended for your down payment and closing costs.

After entering this data, a calculator will provide a home price range, often categorized as "Affordable," "Stretch," or "Over Budget."

What is the 28/36 Rule and Debt-to-Income Ratio?

Lenders use the debt-to-income ratio (DTI) to assess your ability to manage monthly payments. Your DTI is the percentage of your gross monthly income that goes toward paying debts. The 28/36 rule is a common standard: no more than 28% of your income should go to housing costs, and no more than 36% should go to all debts combined.

For example, with a $100,000 annual salary ($8,333/month):

• 28% for Housing: Your mortgage payment, including property taxes and insurance, should ideally be $2,333 or less.
• 36% for Total Debt: Your mortgage plus all other monthly debts should not exceed $3,000.

A DTI below 36% is generally considered affordable by most lenders, increasing your chances of loan approval.

How Much House Can I Afford on a $100,000 Salary?

The answer depends heavily on your loan type, which dictates the required down payment. Here’s a breakdown based on a $100,000 income with $650 in monthly debts:

Conventional Loan (20% Down) For this loan type, a 20% down payment helps you avoid Private Mortgage Insurance (PMI), an additional fee that protects the lender. On a $250,000 home, a 20% down payment is $50,000. Closing costs, which include fees for the appraisal, title insurance, and lender services, typically range from 2% to 5% of the home's price (about $12,500 on a $250,000 home). With total savings of $62,500:

• Affordable Range: Up to $319,100
• Stretch Range: $319,101 - $385,000
• Over Budget: $385,001+

FHA Loan (3.5% Down) An FHA loan is a government-backed mortgage requiring a minimum down payment of 3.5% for borrowers with a credit score of 580 or higher. With a down payment of $8,750 and $12,500 for closing costs (total savings of $21,250):

• Affordable Range: Up to $275,200
• FHA loans often use a "31/43" rule, where housing costs should not exceed 31% of income and total debts should not exceed 43%.

VA Loan (0% Down) Available to eligible veterans and their spouses, VA loans require no down payment and no mortgage insurance. Assuming $12,500 for closing costs:

• Affordable Range: Up to $303,800
• VA loans generally cap your DTI at 41%.

What Practical Advice Should I Follow When Buying?

While calculators provide a baseline, practical wisdom is crucial for long-term financial health.

• Don't Buy at Your Maximum Approval: Loan approvals often represent the ceiling of what a lender believes you can pay. "Don’t max out your budget. Life happens, and you don’t want to be choosing between your mortgage and fixing your car," advises industry expert Ron Myers.
• Build a Robust Emergency Fund: Homeownership comes with unexpected repairs. A solid emergency fund ensures you can handle surprises without financial strain.
• Consider a Starter Home: There is no shame in starting with a smaller single-family home, townhome, or condo. This allows you to build equity and upgrade to a larger property when the time is right.

Ultimately, the goal is to find a payment you are comfortable with long-term, ensuring your new home is a source of stability, not stress.