How much home can I afford on a $90,000 per year income?
Do you make $90,000 or more in a year? If so, congratulations! According to a recent Census report, you make almost $20,000 more than the national average salary. If you’re in that income bracket, you may be considering a home purchase.
Earning $90,000 or more can help with a mortgage, but there are other factors to consider. How much debt you carry, your credit, your down payment, and more can impact home affordability and mortgage approval.
If you think you're ready to look into homeownership, we’ve got tips to help you before applying for a mortgage. Our advice can help you decide if homeownership is right for you, and what else you can do to prepare.
Continue reading to learn more about affording a mortgage with a salary of $90,000 or more. You can also get the homebuying process started now with a mortgage pre-approval from us!
How to figure out how much mortgage you can afford
Understanding if you can buy a house requires looking at your finances. Here's a simplified approach:
Know Your Debt-to-Income (DTI) Ratio
Your debt-to-income ratio is the percentage of your income that goes toward paying debts each month. To calculate it, add all your monthly debt payments (credit cards, loans, etc.) and divide by your monthly income. Lenders typically prefer a DTI ratio below 43%. This includes your potential mortgage payment.Estimate Your Housing Budget
Your monthly housing expenses should not exceed 28% to 36% of your total monthly income. This includes mortgage, taxes, insurance, and PMI if applicable.Determine Your Down Payment
Consider how much you can put down upfront. A 20% down payment prevents the need for PMI but lenders don't always require it.
Calculate Your Potential Mortgage Payment
Estimate your monthly mortgage payment using an online calculator. Consider interest rates, down payment, and loan term.
Consider Other Costs
Account for property taxes, homeowners insurance, maintenance, and possible HOA fees.
Review Your Credit Score
A good credit score can help you qualify for a lower interest rate. Make sure yours is in the best shape possible before applying for a mortgage.
Get Pre-Approved
Getting pre-approved by a mortgage lender helps you know exactly how much you can borrow and the interest rate.
Budget and Savings
Look at your finances to make sure you can afford a down payment and closing costs. It's important to keep in mind that owning a home comes with expenses beyond the mortgage payment. You may also need to take care of repairs and maintenance. It's also a good idea to maintain a financial safety net for unforeseen costs. A financial advisor or mortgage specialist can give advice if you need it.
What are a few tips I can use to afford a home with a $90,000 income?
You can own a house on a $90,000 income by managing your finances well. Here are some common tips to help you make homeownership more manageable:
Budget Wisely
Create a detailed budget that accounts for all your income and expenses. Knowing where your money goes can help you find areas to save.
Save for a Down Payment
Aim to save for a substantial down payment, ideally 20% of the home's purchase price. A larger down payment reduces your monthly mortgage. It can help you avoid private mortgage insurance (PMI). We’ve got a few examples of what it might look like to afford a $300,000, $400,000, or $500,000 home. You can also use our home affordability calculator to get custom payment information.
Improve Your Credit
Maintain a good credit score by paying bills on time, reducing credit card balances, and avoiding taking on new debt. A higher credit score can lead to lower interest rates on your mortgage.
Reduce Debt
Pay down existing debts, such as credit cards and loans. Lowering your debt burden can improve your debt-to-income ratio (DTI), making it easier to qualify for a mortgage.
Manage Your Expectations
Be flexible about the type of home you want and its location. Consider starter homes or neighborhoods with lower housing costs.
Consider First-Time Buyer Programs
First-time homebuyers may qualify for programs to help with down payment or closing costs. Finding a program designed for first-time homebuyers can make home affordability a bit easier.
Budget for All Costs
Remember that homeownership comes with additional expenses beyond the mortgage payment, such as property taxes, homeowners insurance, maintenance, and utilities.
Side Income
Explore opportunities to earn extra income through part-time work, freelance gigs, or passive income streams.
Consult a Financial Advisor
You can get help from a money expert or real estate pro. They will assist you in creating a financial plan. This plan will align with your home ownership goals and income. Remember that affordability varies based on location, so what you can afford in one area may differ from another. Be patient, and don't rush into a purchase. Careful planning and budgeting can help you achieve your goal of homeownership while maintaining financial stability.
How important is debt-to-income (DTI) ratio?
Your DTI ratio is important for mortgage applications. The DTI ratio is crucial for mortgage applications. One way lenders look at DTI is with the 28/36 rule. According to this rule, your housing costs shouldn't be more than 28% of your income. Also, your total debt payments should be less than 36% of your income.
Lenders check your DTI to see if you qualify for a loan and what terms you can get. If your DTI is high, lenders may deny your application or offer you a loan with a higher interest rate. But if your DTI is low, you have a better chance of approval and better loan conditions.
How does the 28 / 36 rule work?
The 28/36 rule helps lenders assess if a borrower can handle housing costs and debt. It's like the DTI ratio but focuses on a borrower's ability to afford a mortgage. Here's how the 28/36 rule relates to the DTI ratio:
Front-End DTI (28% Rule)
The 28/36 rule states that your housing costs, such as mortgage and insurance, should not exceed 28% of your monthly income. For example, if your gross monthly income is $5,000, your PITI (Principal, Interest, Taxes, Insurance) should not exceed $1,400 (28% of $5,000). Front-End DTI = (PITI) / Gross Monthly Income
Back-End DTI (36% Rule)
The second part of the 28/36 rule considers your overall financial obligations. Your debt payments should not be more than 36% of your total monthly income. This includes housing costs and other monthly debts such as credit card bills, car loans, and student loans. If you earn $5,000 per month, your debt payments should be no more than $1,800 (36% of your income).
The 28/36 rule helps lenders decide if someone can afford a mortgage. It looks at the front-end and back-end DTI ratios. This rule is a simple guideline for lenders to see if a borrower can qualify for a mortgage.
The 28/36 rule is a general guideline. However, lenders may have different criteria. They may also make exceptions based on factors such as credit score and down payment. To improve their chances of getting a mortgage and good terms, borrowers should aim for DTI ratios below these thresholds.
How can I apply for a mortgage?
Do you think you’re ready to take the next step toward home ownership? If you're earning $90,000 per year or more, it may be possible to own a home. Let our team find a mortgage that helps you afford the home you've been thinking about. Start by getting pre-approved for a mortgage today.