Home affordability is a delicate balance – the most gentle of consumer dances – between your personal budget, home prices in your area, what you need out of the house, and your future financial goals. Yes! The goals you have for your future after you buy the home. So, how much house can I afford with 100k salary? Let's find out.
How much house can I afford with 100k salary?
Let's say you make $100,000 BEFORE taxes. To keep this clean and simple, we could use a variety of popular quick formulas to ascertain how much house we'd be able to purchase.
The 3-4x rule: Many like to take their pre-tax income and multiply it by 3 (or 4 if you have really low debt) to get a broad number for how much house they can afford. Using this calculation, a person making $100k annually could purchase a home between $3-$400k purchase price.
The 28/36 rule: Most lenders want a borrower's total debt load to be below 36% of their pre-tax income. Factoring in other debts, most recommend a housing payment be no more than 28% of their pre-tax income. Using this calculation, $28,000 annually or $2,333 per month would be affordable for someone with a $100,000 salary. This equates to ~$400,000 purchase price on the home. (I used the mint calculator for these calculations.)
Assuming you have a 5% down payment (which is what would be required for an FHA loan) and less than 6% in other debts per month (~$500) you could afford a $400,000 home on a $100,000 salary.
How to set a realistic homebuying budget: 4 steps.
But just because you make $100,000 large doesn't mean you should go up to the top of your limit of affordability. I'm about to explain why, but below are steps to take to really ascertain how much house you can afford with your budget.
Step #1 – Make your wish list first.
Home affordability isn’t just about the list price of a home. The listing price encompasses what you get in a home. This is why I recommend that homebuyers to create a wish list first before they even start playing with the numbers.
Then, separate this “wish list” into two columns: needs and wants.
Often, your needs won’t match up with what’s affordable in your area. In your area, your budget might get you three beds and two baths with no extras, like a basement or pool. This is why it’s important to know first what those non-negotiable items are.
#2 – Find your number, subtract 20%
The old affordability trick of taking your annual income and multiplying it by 3 (or four in some cases) is just that – old. This quick calculation doesn’t take into account the very nuanced details of most individuals’ financial picture.
This type of affordability calculation is also how people become “house poor” – they buy a home solely based on what their income allows, and then have to make a new, escalated mortgage payment. Add bills AND existing debt and suddenly, their discretionary income for fun things like shopping, travel, and eating out shrinks.
I like this home affordability calculator from Credit.com because it asks you for both income and debt information. Then, I recommend taking the number it spits out and subtracting 20% of your take-home income pay from this number.
Ideally, you should only spend 50% on living expenses, 30% on your lifestyle and 20% of your income should go toward debt and savings. (It's called the 50-30-20 budget method) Subtracting 20% from how much home you can afford ensures you’ll be able to afford the home, pay for maintenance contribute to retirement, pay your debts, and still hit annual savings contributions – or at least get very close.
#3 – Factor in additional home-buying costs.
Say you want to buy a 3-bedroom/2-bath home for $275,000. It’s important to keep in mind, however, that when you get to closing you won’t just pay the bank $275,000.
There are also closing costs, which are generally between 2-5% of the list price.
Many buyers forget to account for closing costs in the total purchase price. So, using the credit.com calculator again, if I’m approved for $275,000 and I subtract 5% of that number for closing costs, plus I subtract 20% to ensure I can still save, I get an actual home affordability price of $206,250.
#4 – Go back and rework your wish list.
Now that you have a true home affordability number, go back to a home search tool and see how your wish list stacks up against home prices in your area. You may find you’re not able to get a few of the “wants” on your list, but nearly all of your needs. (You can also use a home-buying checklist, here.)
Maybe you’ll need to look at a smaller, starter home or look outside your preferred area for a bargain. Working with a trusted agent is also important because they are experts in the local market and can help you find the right home for your budget.
How much house can I afford on a 100k salary….really?
Using my rough estimates and plugging in the factors mentioned above, someone with a $100k salary should look for a home between $320,000 – $400,000. Bear in mind that in 2023's high-interest rate environment, $300k+ won't go as far as it would when interest rates were sub 4% back in 2022.
The price is not as much as you thought, right? But the good news is in most areas outside of large cities, a $3-$400k toward a home can still go pretty far and get you a really nice starter home, family home, or house hack. (In 2023 the median housing price is $436,000 so we're right on that. Although, don't get me started on how a six-figure salary can only get you a median-price home these days.)
Keep in mind: Setting the right home-buying budget and buying a truly affordable home not only helps in meeting other important financial goals (hi, retirement). Searching for a home that sits nicely in your existing budget also keeps your lifestyle in check.
Because no matter how fabulous your new place is, saying no to brunch because you have to pay your mortgage still sucks. (Need a refresher on what a mortgage actually is? click here.)
Lauren Bowling is the creator of Financial Best Life. Writing about money since 2012 (formerly as L Bee and the Money Tree), Bowling is an award-winning blogger and money and real estate expert whose advice has been featured on CNBC, Forbes, CNNMoney, Elite Daily, Business Insider, Redbook, and Woman’s Day Magazine and more. After selling the site to a division of The Motley Fool in 2019, Bowling is now back as the owner and primary voice behind FBL and is excited to continue educating elder millennials everywhere about how to afford their best life.