Whether you have $140,000 on your own or your combined household income, you’re probably feeling pretty confident about your home buying journey.You’re earning about twice as much National median household incomeAccording to the latest census data, that’s $70,784, so it shouldn’t be too difficult to get approved for a mortgage and find a home that fits your budget.
However, shop wisely.When you earn more, it’s easier to spend more — this is what experts call it lifestyle inflation — And if you’re not careful, high monthly mortgage payments can cause your expenses to exceed your monthly income. Let’s crunch the numbers to see how much home you can buy with a salary of $140,000.
Many financial professionals use a very simple set of calculations called. 28/36 rules To assess affordability. These guidelines detail how much of your income you should put towards your mortgage and other debts. The rules state that no more than 28 percent of your gross income can go towards your monthly housing payment. And you shouldn’t allocate more than 36% to your total debt, including your home, such as car payments, student loans, and credit card bills.
Let’s apply the 28/36 rule to your $140,000 salary to see how much you should spend on housing.
$140,000 / 12 = $11,667 (total monthly income)
$11,667 x 0.28 = $3,267 (maximum amount to spend on monthly housing costs)
$11,667 x 0.36 = $4,200 (maximum amount you should spend on your total debt each month)
How much house can I buy?
But wait, you might be thinking: You want to know the purchase price, not just how much your mortgage payment will cost. Bankrate’s Mortgage Calculator This means that if you buy a $500,000 home with a 20 percent down payment and a 30-year loan at a 7.5 percent interest rate, your monthly principal and interest payments will be $2,796. That leaves him with a few hundred dollars to cover home insurance and property taxes before he hits the $3,267 cap, but the amounts vary widely depending on where you live.
So let’s assume you can afford a $500,000 home. However, remember that this does not include initial costs. His 20% down payment on a home of that price would be the equivalent of $100,000, plus closing costs.
These aren’t the only factors to consider before you start buying a home. Here are some other indicators that mortgage lenders will look at to make sure you’re not overextending yourself.
Credit score: higher than your credit score This means you will get a better interest rate and therefore pay less interest. This can lead to big savings over the life of your loan, so it’s worth getting your score in the best possible shape before you start your home search.
Debt to income ratio: often called DTI, this metric is similar to the 28/36 rule in that it measures how debt stacks up relative to income. If you are under 36, you are in good health, but some financial institutions allow a higher DTI.
down payment: you may have heard of it need to reduce by 20%, but not necessarily. Some loans require a down payment of as little as 3%. However, if you pay less upfront, you will have to borrow more money and your monthly payments will be higher. 20% avoid payment when you pay in full private mortgage insurance In addition to mortgage payments. Given your $140,000 salary, it makes sense to make a larger down payment.
Desired location: In most parts of the country, a $500,000 housing budget will probably get you a spacious single-family home. But in particularly expensive markets, such as New York City and the San Francisco Bay Area, your purchase could be significantly less expensive.Consider the common Cost of living So are prices for everything from groceries to transportation to entertainment. Make sure you can afford not only the home you buy, but also the lifestyle you want to live.
Even if you’re comfortable spending $500,000 on a home, you probably don’t just have that kind of cash lying around. This is where home loans come into play.
Get pre-approved for a mortgage loan
Before you start looking for a house, Mortgage pre-approval. Although pre-approval is not final approval, it will give you an idea of the size of the loan you may receive, so you don’t waste time looking at homes that aren’t within your budget. This can also be very important in a competitive market where there may be multiple offers on a home. A pre-approval lets the seller know you’re a serious and qualified buyer.
different types of loans
there are many different ones Types of mortgage loans It will help you make that 500,000 home yours. Most have specific credit score requirements, and you may not meet some requirements because of your higher salary. If you’re a military member or veteran, VA loans are well worth considering. FHA loans are also often popular with first-time buyers and borrowers with bad credit. But given his $140,000 salary, he’ll probably consider a traditional loan. A knowledgeable loan officer or mortgage broker can explore your options with you.
first home buyer program
Are you transitioning from renting to homeownership? first time• If so, you may be able to take advantage of a program for first-time home buyers.? These programs range from grants to low-interest or forgivable loans that provide closing costs and expenses. Down payment assistance. However, many such programs have salary caps, so an income of $140,000 may disqualify you.
If you’re ready to enter the home buying market, Experienced real estate professional The best first step is to go to your desired area. Local agents know the market and can show you home options that fit your needs and budget. Ask friends and family for recommendations, look at yard signs in your favorite area, and research online to find some good candidates. Next, interview a few people and then choose the one that’s right for you.