Buying a home is a big step, and it’s important to know how much mortgage you can afford.
If you’re making $50,000 a year, how much home can you buy?
Let’s break it down in a way that’s easy to understand.
By the end of this article, you’ll have a better idea of how much mortgage you can afford based on common guidelines like debt-to-income ratios and down payments.
What Is a Mortgage?
A mortgage is a loan that you use to buy a house.
You borrow money from a bank or other lender and agree to pay it back over a long period, usually 15 or 30 years.
The amount of money you can borrow depends on how much you make, how much debt you have, and how much money you can put down upfront.
How Much Can I Afford?
The general rule of thumb is that your monthly mortgage payment should not be more than 28% to 31% of your gross monthly income (before taxes).
So, if you make $50,000 a year, how do we figure out your monthly mortgage payment?
Step 1: Calculate Your Monthly Income
First, let’s find out how much money you make each month.
$50,000 ÷ 12 = $4,167 per month
That means you make $4,167 before taxes each month.
Step 2: Apply the 28%-31% Rule
Now that we know your monthly income, we can calculate how much mortgage you can afford.
Let’s take 28% of your monthly income (the lower end of the range).
$4,167 x 0.28 = $1,167
This means your monthly mortgage payment should be around $1,167. If we use the 31% rule:
$4,167 x 0.31 = $1,292
This gives you a range for how much mortgage you can afford, between $1,167 and $1,292 per month.
This is just the mortgage payment itself, not including property taxes or homeowner’s insurance, which we’ll talk about later.
Debt-to-Income Ratio (DTI)
Lenders also look at something called your debt-to-income ratio (DTI).
This is the percentage of your monthly income that goes toward paying off your debts, like credit cards, student loans, and car loans.
Lenders usually want your DTI to be below 43%, but ideally, it should be below 36% to get a better loan.
Let’s say you have the following debts:
- Credit card payment: $200 per month
- Student loan payment: $150 per month
- Car loan payment: $300 per month
That’s a total of $650 in monthly debt payments. Let’s calculate your DTI:
- Monthly debt payments: $650
- Gross monthly income: $4,167
DTI = ($650 ÷ $4,167) x 100 = 15.6%
If your DTI is 15.6%, you’re in a good spot because it’s well below 36%, and most lenders will consider you a safe bet for a mortgage.
Down Payment: How Much Should You Save?
The down payment is the money you pay upfront when buying a house.
It’s usually a percentage of the house’s price.
A common down payment is 20% of the home’s price, but it can be lower depending on the type of loan you get.
For example, if you’re buying a home worth $200,000, a 20% down payment would be:
$200,000 x 0.20 = $40,000
That means you would need $40,000 saved up for your down payment.
But if you don’t have that much, don’t worry!
There are programs that let you pay as little as 3% down, especially for first-time homebuyers.
For a $200,000 home, a 3% down payment would be:
$200,000 x 0.03 = $6,000
If you can save $6,000 instead of $40,000, your monthly payment will be higher, but it could still be doable.
What Can $50,000 Get You?
Let’s look at an example of how much home you can afford based on your $50,000 salary and the different down payments and monthly payments we’ve discussed.
We’ll assume a 30-year mortgage with a 3% interest rate.
The chart below shows three different home prices and how much you might pay per month:
| Home Price | Down Payment (20%) | Loan Amount | Monthly Payment (approx.) |
|---|---|---|---|
| $150,000 | $30,000 | $120,000 | $507 |
| $200,000 | $40,000 | $160,000 | $676 |
| $250,000 | $50,000 | $200,000 | $845 |
Note: These monthly payments only include the mortgage and don’t include taxes or insurance, which will make your total payment higher.
How to Use the Mortgage Calculator
Want to know exactly how much you can afford?
You can use this handy Mortgage Calculator to get a more accurate idea.
Simply enter your income, debts, down payment, and loan terms, and the calculator will give you an estimate of your monthly payments.
Other Costs to Consider
When calculating how much mortgage you can afford, it’s important to remember that there are other costs involved in owning a home, such as:
- Property Taxes: Taxes on your home that go to the local government.
- Homeowners Insurance: Protects your home in case of fire, theft, or damage.
- Private Mortgage Insurance (PMI): If you put down less than 20%, you may need to pay PMI to protect the lender in case you default on the loan.
These costs can add a few hundred dollars to your monthly payment, so be sure to factor them in.
Conclusion
With a $50,000 salary, you can afford a mortgage that costs between $1,167 and $1,292 per month, depending on your debt and financial situation.
By saving for a down payment and using a mortgage calculator, you can make sure you’re buying a home that fits your budget.
Remember, it’s not just about how much you can borrow, but what you feel comfortable paying each month.
Don’t forget to check out the Mortgage Calculator for a personalized estimate!
If you’re still unsure about how to calculate the right mortgage for your financial situation, don’t miss our Comprehensive Guide on How Much Mortgage You Can Afford to get more in-depth tips and tools to help you make the best decision.
Happy home buying!