Today’s housing market is tough for everyone, even on a $120,000 salary. Your income puts you in the upper half of American earners, well above the median household income of $74,580, per Census data. However, high mortgage rates and steep home prices are deterring many would-be homeowners, even high-earning ones. Read on to learn how much house you can afford if you’re making $120,000 per year.
The 28/36 rule
Scratching your head about how much house you can comfortably afford? Many experts recommend following the 28/36 rule, a guideline suggesting that you limit your monthly housing costs to no more than 28 percent of your monthly income, and your total debt payments — including housing expenses — to no more than 36 percent.
Let’s break that down. A $120,000 salary equates to $10,000 per month, and 28 percent of $10,000 is $2,800, so that should be your cap on monthly housing expenses. Bankrate’s mortgage calculator shows that, with a 20 percent down payment on a 30-year fixed-rate loan at 7 percent interest, the monthly principal and interest payment will be $2,501 on a home of $470,000. That leaves you some breathing room to add in variables like property taxes, homeowners insurance and HOA fees (if applicable) before reaching the $2,800 mark. So, assuming you have enough to cover that down payment plus more left over for upkeep and emergencies — and also assuming your other monthly debts don’t take you over that 36 percent figure —you should be able to afford a home of $470,000 on your salary.
How much house can you afford?
Income isn’t the only factor influencing how much house you can afford, though. Factors like your savings, credit score and desired location will all shape your homebuying power:
Savings and down payment
If you have a sizable chunk of savings, you’ll be at an advantage in the homebuying process. Mortgage lenders like to see that you have enough of a cushion to comfortably cover maintenance and unexpected repairs.
And the traditional down payment of 20 percent is not necessarily mandatory, but if you can put down at least that much you will reap several benefits. For one, you avoid paying private mortgage insurance premiums, which add to your monthly housing costs. In addition, the more you pay upfront, the less you have to borrow, which means lower payments and less interest paid over the life of the loan. It may also help snag you a more competitive interest rate than you would get with a smaller down payment.
Credit score and debt-to-income ratio
Your credit score is one of the most important parts of your mortgage application. Low scores cause lenders to view you as a risky borrower, and they’ll charge you a higher rate if your score is subpar. The higher your credit score, the better rate you’re likely to qualify for. Lenders will also scrutinize your debt-to-income ratio, or the percentage of your income that goes towards debt payments.
Location and amenities
A home budget of $470,000 means you’ll have options priced above the national median price, which was $407,100 as of August 2023. However, even this relatively high budget will stretch further in some areas than others. If you’d rather live in a mansion than a cramped condo, you’ll probably be out of luck in the nation’s priciest metro areas. For example, in Indianapolis, where Redfin data shows the median home price is about half of your budget at $240K, $470K will buy quite a lot, and probably with lots of upgrades and land too. But in San Diego, where the median is almost double at more than $930K? Probably not so much.
Home financing options
Getting preapproved for a mortgage is the best way to get a firm grasp on how much you can actually borrow. It can also be crucial in a competitive market, showing sellers who might have multiple offers that you are a serious, qualified buyer. Preapproval isn’t a formal commitment, so you’re not obligated to get your official mortgage through the same lender that preapproved you.
Different types of loans
There are many types of home loans, each with their own pros and cons. Some, like FHA loans, have lower minimum credit scores and down payment requirements. Even a conventional loan can be had for just 3 percent down if you qualify. However, given your high income, you could be ineligible for some options — and in the long run, it’s better to put down more if you can afford to.
First-time homebuyer programs
Saving for a down payment can feel especially daunting if you’re buying a home for the first time. Several national, state and local programs are available to help ease that financial burden, most of which provide grants and low-interest or forgivable loans. Eligibility for down payment assistance programs is usually income-based, so you may not qualify based on your $120,000 salary, but it’s worth checking.
Get started
In most parts of the country, a $120,000 annual salary can afford you a very comfortable, and even luxurious home. But mortgage rates are high, which hampers your buying power. So consider whether now is the righttime to buy a house, based on your current life and financial circ*mstances. How far will your budget stretch in your desired area right now? What’s next for you, your family and your job? If you decide to take the plunge, don’t do it alone: Work with an experienced local real estate agent who can help guide you to a great home at a price you feel good about.
FAQs
So, assuming you have enough to cover that down payment plus more left over for upkeep and emergencies — and also assuming your other monthly debts don't take you over that 36 percent figure — you should be able to afford a home of $470,000 on your salary.
How much mortgage can I get with a 120K salary? ›
According to the Federal Reserve Bank of St. Louis, the median home sales price in the US is $436,800. But as we walk through below, even if you're making $120k a year and can make a $15k down payment, your home-affordability could range from $265k to nearly $400k (based on several factors specific to your situation).
How much house can I afford with a 125k salary? ›
Using NAR's 25 percent metric, at the current mortgage rate (6.66 percent in late March), “buyers earning $125,000 a year can purchase a home up to $510,000 if they put 20 percent down,” Evangelou says. “However, if they put 10 percent down, they can afford to purchase a home for up to $450,000.”
How much house can I afford with a 115k salary? ›
The 28/36 rule
It's a standard guideline that states you should limit your monthly housing payment to no more than 28 percent of your monthly income, and your total debt payments — including that housing payment — to no more than 36 percent. If you earn $110,000 in gross income, that's approximately $9,166 each month.
What does a 120K salary look like? ›
As of Apr 25, 2024, the average annual pay for a 120K in the United States is $118,573 a year. Just in case you need a simple salary calculator, that works out to be approximately $57.01 an hour. This is the equivalent of $2,280/week or $9,881/month.
Can I buy a house making 120k a year? ›
Safe debt guidelines
So start by doing the math. If you make $50,000 a year, your total yearly housing costs should ideally be no more than $14,000, or $1,167 a month. If you make $120,000 a year, you can go up to $33,600 a year, or $2,800 a month—as long as your other debts don't push you beyond the 36 percent mark.
Can I afford a 400k house with a 120k salary? ›
The annual salary needed to afford a $400,000 home is about $127,000. Over the past few years, prospective homeowners have chased a moving target: homeownership.
Can I afford a 500k house on 100k salary? ›
To afford a $500,000 house, you need to make a minimum of $91,008 a year — and probably more to make sure you're not house-poor and can afford day-to-day expenses, maintenance and other debt, like student loans or car payments. One good guideline to follow is not to spend more than 28 percent of your income on housing.
How much is 125k a year hourly? ›
As of Apr 30, 2024, the average hourly pay for a 125 000 in California is $24.77 an hour. While ZipRecruiter is seeing salaries as high as $37.72 and as low as $14.71, the majority of 125 000 salaries currently range between $23.27 (25th percentile) to $30.38 (75th percentile) in California.
How much is 125k a year biweekly? ›
If you make $125,000 per year, your Biweekly salary would be $4,808. This result is obtained by multiplying your base salary by the amount of hours, week, and months you work in a year, assuming you work 40 hours a week.
A $3,500 per month mortgage in the United States, based on our calculations, will put you in an above-average price range in many cities, or let you at least get a foot in the door in high cost of living areas. That price point is $550,000.
What is a good credit score to buy a house? ›
It's recommended you have a credit score of 620 or higher when you apply for a conventional loan. If your score is below 620, lenders either won't be able to approve your loan or may be required to offer you a higher interest rate, which can result in higher monthly mortgage payments.
How much house can I afford with a 140K salary? ›
Let's apply the 28/36 rule to your $140K salary to see how much you should be spending on housing costs: $140,000 / 12 = $11,667 (gross monthly income) $11,667 x 0.28 = $3,267 (the most you should spend on housing costs each month) $11,667 x 0.36 = $4,200 (the most you should spend on total debt each month)
Is 120k considered middle class? ›
The Pew Research Center defines the middle class as households that earn between two-thirds and double the median U.S. household income, which was $65,000 in 2021, according to the U.S. Census Bureau. 21 Using Pew's yardstick, middle income is made up of people who make between $43,350 and $130,000.
Is 120k a year upper middle class? ›
The upper middle class is often defined as the top 15% to 20% of earners. According to the Social Security Administration's 2022 wage data, the average upper-middle-class income was roughly between $80,000 and $100,000.
What percentage of Americans make 120k? ›
Only 15.5% of Americans earn between $100,000 and $149,999 per year.
| Annual Income | Share of Americans |
|---|
| Less than $100k | 65.6% |
| $100k-$149.9k | 15.5% |
| $150k-$199.9k | 8.3% |
| $200k+ | 10.3% |
Jan 18, 2023
This commonly used guideline states that you should spend no more than 28 percent of your income on your housing expenses, and no more than 36 percent on your total debt payments. If you're earning $100,000 per year, your average monthly (gross) income is $8,333. So, your mortgage payment should be $2,333 or less.
How big of a mortgage can I get making 100K a year? ›
If your annual salary is $100,000, the 30% rule means you should spend around $2,500 per month on your house payment. With a 10% down payment and a 6% fixed interest rate, you could likely afford a home worth around $350,000 to $400,000 (depending on the cost of taxes and home insurance).
What is a good mortgage for 100K salary? ›
Your financial situation dictates the value of homes you can afford with a 100k salary. Generally, a mortgage between $350,000 to $500,000 is feasible. However, a person with low Credit might only qualify for a $300,000 mortgage, while someone with excellent credit might qualify for a $500,000 mortgage.
