If you’re finally ready to look into purchasing property but don’t know how much house you can afford, you’ve come to the right article. No more landlords, rent increases, and noisy upstairs neighbors in your apartment in Portland, OR: just you and your future home. But first, you need to first figure out how much house you can afford with your $90,000 a year salary.
Using Redfin’s mortgage calculator, on a $90,000 a year salary with zero current debts, 20% down payment, and a 36% debt-to-income ratio, you’ll be looking at homes valued at $370,000 and below. Of course, this is a quick answer to a more complex question. How much house you can afford on a $90,000 a year salary depends on a variety of factors that will be explored in this Redfin Real Estate article.
Factors that affect what you can afford
What’s your credit score?
How large of a down payment can you afford?
What’s your debt-to-income ratio?
What are the current interest rates?
Where are you trying to live?
How much work does the house need?
The bottom line: know what you can afford
What’s your credit score?
If you’re paying cash for your house, skip this section. Sellers don’t really care about your credit score as long as you can pay for the house in full. However, if you’ll need financing to move into your new home – like most Americans – your credit score can play a large role in what you can afford.
- Exceptional (800+): You qualify for the best rates available and can have your pick of lenders.
- Very good (740-799): These borrowers also tend to qualify for high-quality interest rates
- Good (670-739): This is where you’ll start to see a slight increase in interest rates, but this range is considered favorable.
- Fair (580-669): Interest rates in this range can start to increase more.
- Poor (579 or lower): If you’re in this range, you’ll pay significantly more in interest, and securing a mortgage can become much harder.
Don’t worry if your credit score is toward the lower end of this range; there’s still plenty you can do to improve it and save thousands in interest on your home loan. If you want to improve your credit score, make sure to pay your loans on time, don’t get too close to your credit limit, and decrease your outstanding debt.
In a nutshell: A higher credit score may qualify you for better loans with lower interest rates, allowing you to afford a house with a higher asking price.
How large of a down payment can you afford?
The size of your down payment directly affects how much house you can afford with a $90k salary. If you’re able to save the coveted 20% down payment, you can avoid paying private mortgage insurance (PMI). With a down payment less than 20%, most lenders will require you to purchase PMI, which can run between 0.5 to 1.5% of your loan amount per year. PMI is designed to protect the lender’s investment, but reaching the 20% down payment threshold often allows you to forgo this extra expense.
The larger the down payment, you’ll often be looking at a less expensive monthly payment on your mortgage. So, it’s often a good idea to put down as much as you can without tying all your money up in your property.
The bottom line: Aim to pay a 20% down payment if you can afford it and still have enough saved to cover any emergency expenses. The larger the down payment, the smaller your monthly mortgage payments will be.
What’s your debt-to-income ratio?
Debt-to-income (DTI) ratio is a way to compare your monthly debt payments with your gross monthly income. Lenders will use this ratio as a way to determine your ability to repay your loans. A higher DTI could result in increased mortgage rates, while a lower DTI suggests a stronger ability to manage debt and is more favorable to lenders. To calculate your DTI, follow the formula below:
DTI = (Total monthly debt payments / gross monthly income) x 100
Let’s say you spend $1,200 a month on credit card minimums, a car payment, and student loans. With an annual gross income of $90k, your monthly gross income would be $7,500. Therefore, your DTI would look something like this:
DTI = ($1,200 / $7,500) * 100 = 16%
This means that 16% of your income is going to paying off monthly recurring debt payments. Most lenders prefer a DTI that is less than 36%, but many lenders offer exceptions for ratios up to 45% or 50% for an FHA loan.
Using the 28/36 rule
Even though you could get approved for a mortgage, it’s usually a good idea to follow the 28/36 rule. The 28/36 rule states that you should spend a maximum of 28% of your gross monthly income on total housing expenses (mortgage payments, property taxes, homeowners insurance premiums, and homeowners association fees) and no more than 36% on total debt service.
Following the 28/36 rule may increase your chances of securing a mortgage at a favorable rate without risking defaulting on your debts. When asking yourself, “If I make $90,000, how much house can I afford?”, it’s important to keep in mind your debts. Lenders pay attention, and it can affect which types of properties you can consider in your price range.
In summary: Aim for a DTI that is less than 36%, meaning 36% of your monthly gross income goes to paying debts. Ideally, you’ll want only 28% of your gross monthly income to be spent on total housing expenses, but this can be pushed if you’re willing to budget a little more.
What are the current interest rates?
Even the slightest change in interest rates can have you paying or saving thousands of dollars in interest. Higher rates will push down the ceiling of what you can afford on a 90k salary, while lower interest rates can give you a little extra wiggle room to stretch to a home with a larger asking price.
There may be the temptation to wait and continually ask yourself, “Is now a good time to buy a house?” Waiting for interest rates to drop is unpredictable and usually not recommended. The best time to buy a house is when you can afford it. You can always refinance later if rates drop and your credit is in good shape.
Key takeaways: Knowing the current interest rates can be helpful, but be careful not to get paralyzed waiting for a drop that may never come. The best time to buy a house is when you can afford it.
Where are you trying to live?
Location, location, location. Depending on where you want to live, your $90,000 a year could get you a three-bedroom house in Kansas City, MO or a two-bedroom condo in Boston, MA. Of course, your location options can be impacted by where you work. With a remote job, you have more flexibility if you’re looking at moving to a different state.
However, you don’t need to move to a different state to stretch your $90,000 a year a little further. Sometimes living just a few extra minutes out of the city can afford you the opportunity to stretch up to a bigger house with an extra bedroom or some more land. Location, location, location – there’s a reason real estate agents say it so much. It really is an important factor in where you choose to live.
Main points: If you’re willing to live in a more rural area, you may be able to afford a little more house on your $90k a year salary.
How much work does the house need?
For those handy with a toolbelt and YouTube, purchasing a house that needs some work can help you get a little bit more bang for your buck. There is a fine line, however, between a house that needs a new coat of paint and a house with significant structural damage. Before closing on a home, make sure to get a home inspector to check out the property and report their findings.
In a nutshell: You can get more house on your $90,000 a year if you have the skills and time to put in some sweat equity.
The bottom line: know what you can afford on your $90k salary
Hopefully now you have a better answer for the question: “If I make $90,000 a year, how much house can I afford?” Now that you’ve got a clearer look at all that goes into deciding how much house you can afford with a $90k a year salary, you’re better prepared to start touring homes and making offers.
To get an even deeper understanding of exactly how much you can afford, explore Redfin’s mortgage calculator to calculate a DTI that works for you and start to look at homes in your price range where you’re wanting to settle down.
