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mozhjeralena/Adobe Stock October 27, 2022 Michele Petry is a senior editor for Bankrate, leading the site’s real estate content. Bankrate logo

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At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. Bankrate logo

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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Buying or selling a home is one of the biggest financial decisions an individual will ever make. Our real estate reporters and editors focus on educating consumers about this life-changing transaction and how to navigate the complex and ever-changing housing market. From finding an agent to closing and beyond, our goal is to help you feel confident that you're making the best, and smartest, real estate deal possible. Bankrate logo

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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’re earning $75,000 each year, you’re doing a bit better than half the country. According to data from the U.S. Census Bureau, the in 2021 stood at $70,784, so that extra $4,216 puts you in the upper 50 percent of earners. However, is causing everything to cost more, including real estate, so your money won’t go as far as it once did. As you try to determine how much house you can afford on your $75,000 salary, read on for a rundown of key considerations to keep in mind.

Start with the 28 36 rule

So how much of your salary should you be spending on housing costs? Historically, the has been a guideline that many lenders use to help understand a borrower’s ability to repay a mortgage and other debts. The rule advises spending no more than 28 percent of your income on housing expenses, and no more than 36 percent of your income on total debt payments, including housing. If you’re making $75,000 each year, your monthly earnings come out to $6,250. To meet the 28 piece of the 28/36 rule, that means your monthly mortgage payment should not exceed $1,750. And for the 36 part, your total monthly debts should not come to more than $2,250. Of course, buying a home is more complicated than just following a simple rule. can help you crunch all the numbers to get a deeper, more detailed understanding of how much house you can comfortably afford.

What factors determine how much you can afford

Obviously your salary is the number one factor in what you can spend on a home. But the amount you can afford is dependent on the rest of your debt as well, including things like car payments and student loans. Here are some other important factors that can have an impact:

Credit score

Your is a reflection of your risks as a borrower. Any lender will look at this number to understand your track record of paying back other debts, which helps them assess your potential for defaulting on the loan. Conventional loans typically require a of 620, but a significantly higher score can help you qualify for significantly lower rates. “Improving your credit score can make a big difference to monthly payments,” says Libby Cooper, vice president of operations for Zillow Mortgages. “For example, a borrower with an ‘excellent’ credit score — between 740 and 850 — can potentially qualify for a with an interest rate upward of 1.5 percentage points better than someone with a ‘fair’ credit score — between 620 and 639. This equates to about a $300 difference in monthly mortgage payments [principal and interest only] and over $100,000 in interest over the life of a 30-year fixed loan, based on the current price of a typical U.S. home [approximately $355,000].”

Down payment

How much of that $75,000 annual salary have you managed to keep in your savings account? Making a bigger down payment lowers the amount of money you need to borrow, thereby shrinking your monthly mortgage payments. For example, consider this breakdown from to see how different down payment amounts on a $320,000 home, assuming a 7 percent interest rate, would impact monthly mortgage payments: Down payment Monthly mortgage payment $64,000 (20 percent) $1,703 $32,000 (10 percent) $1,916 $9,600 (3 percent) $2,065 With your $75K salary, the 28 percent rule means not spending more than $1,750 per month on housing. So if you don’t want to overextend yourself, you would need to put down 20 percent — or find a cheaper home. (Note that this example does not include other common costs of homeownership, like property taxes and homeowners insurance.)

Loan-to-value ratio

Your plays an important role in determining your buying power as well. Lenders like to see a 20 percent down payment for an 80/20 LTV. Smaller down payments will trigger an automatic mortgage insurance premium, meaning you’ll need to budget for another expense: .

Debt-to-income ratio

In addition to mortgage debt, you likely have other debt as well, like student loans, car payments and credit cards. Lenders will evaluate your overall (that’s ultimately what the 36 in the 28/36 rule refers to) to make sure you aren’t stretching your finances too thin as you attempt to pay off all your loans. “While most mortgage products will allow up to 40 to 50 percent DTI, it is more favorable to be in the 20 percent range,” says Eileen Derks, senior vice president and head of mortgage at Laurel Road. “This will minimize risk of repayment should unexpected expenses arise or a significant interest rate increase occur on variable-rate credit products. It is best to live within our means and anticipate [that] unexpected expenses will almost always occur over the life of a mortgage loan.”

Know your mortgage options

Fixed-rate, adjustable-rate, conventional, FHA, VA — there are loads of different financing options for buying a home. The best way to figure out how much you can borrow is to for a mortgage. A mortgage expert can listen to your needs, review your financial information (pay stubs, tax returns, credit report, etc.) and give you a firm estimate of your buying power. The amount you’re preapproved for indicates the amount the lender is likely to eventually approve you for officially. Once you find a home and are ready to finalize your mortgage loan, shop around. (You can go with the same lender that preapproved you, but you’re not obligated to.) The interest rate is the biggest headline you’ll notice when looking at different loans, but there are a number of other puzzle pieces that need to fit into place as well. What fees does each lender charge? Will you need to buy to qualify for a lower rate? Do certain lenders offer benefits that others don’t?

First-time homebuyer programs and other assistance

If this maze of mathematics has you feeling overwhelmed, don’t worry. There are a number of assistance options specifically designed for , both on the federal and local level. There are many out there as well. Plus, depending on where you live and the size of your family, your $75,000 annual earnings may actually help you qualify as a — a distinction that can put you in the running for low-cost loans and grants for down payment and closing costs. In addition, depending on what you do for a living, you might be able to qualify for even better borrowing terms. For example, teachers, law enforcement officers, EMTs and firefighters are all eligible for the Department of Housing and Urban Development’s . If you fall into one of those categories, you might be able to buy a home for a very significant discount.

Stay the course until you actually close

You’ve figured out how much you can afford on your $75,000 salary, gone into contract on a new home and secured a mortgage — but your work isn’t quite done yet. Once a lender has approved you based on all your personal financial information, that information needs to stay the same until the day you close. Now is not the time to do anything that might change your circumstances, like buying a new car or opening a new credit card. “Prospective home buyers should avoid making major financial changes before closing on their home,” Cooper says. “This includes changing or quitting jobs, closing an account to try and remove it from your record or making a major purchase that needs financing, such as a car or new furniture set.” SHARE: Michele Petry is a senior editor for Bankrate, leading the site’s real estate content.

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