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 mortgage can I afford for a 125k salary? ›
The 28/36 rule
With a gross income of $125,000, your monthly income is about $10,400. The 28/36 rule dictates that you shouldn't be putting more than about $2,916 a month toward your mortgage, and no more than $3,750 toward your overall debt.
How much mortgage 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.
Is 120K a good salary in the US? ›
While ZipRecruiter is seeing annual salaries as high as $163,500 and as low as $53,500, the majority of 120K salaries currently range between $102,500 (25th percentile) to $120,000 (75th percentile) with top earners (90th percentile) making $137,500 annually across the United States.
How much home can I afford with a 130k salary? ›
Applying the 28/36 rule, a $130,000 annual earner should keep housing costs below $3,033. However, there are many other factors besides just your income that shape how much house you can comfortably afford. Credit score: A strong credit score is important when you apply for a home loan.
How big of a mortgage can I get making 100k a year? ›
The most common rule for deciding if you can afford a home is the 28 percent one, though many are out there. You should buy a property that won't take anything more than 28 percent of your gross monthly income. For example, if you earned $100,000 a year, it would be no more than $2,333 a month.
How much is 125k a year hourly? ›
As of May 21, 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.
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)
The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).
How much home can I afford with a 150k salary? ›
With a $150,000 salary, you could afford a home priced around $415,000-$430,000, assuming you have $20,000 saved up for a down payment and are carrying some monthly debt already, such as a car payment or student loan. This also assumes an interest rate of 7%.
How much house for $3,500 a month? ›
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.
How much house can I buy with a 120k salary? ›
How much house can I afford on a 120k salary? Keeping the 28/36 rule in mind, a prospective homeowner with a $120,000 income may be able to afford a $1 million home on a 30-year fixed mortgage. That is to say, they could spend up to $33,600 per year on a mortgage.
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.
What percent of us makes 120k? ›
Percentage distribution of household income in the United States in 2022
| Annual household income in U.S. dollars | Percentage of U.S. households |
|---|
| 75,000 to 99,999 | 12.3% |
| 100,000 to 149,999 | 16.4% |
| 150,000 to 199,999 | 9.2% |
| 200,000 and over | 11.9% |
5 more rowsMay 22, 2024
With a $150,000 salary, you could likely afford a home worth between $380,000 and $525,000, assuming you make a 5-20% down payment and avoid spending more than 28% of your gross income on your mortgage payment.
How much do I need to make to afford a 900k house? ›
Experts often advise that you spend no more than approximately one-third of your income on housing costs. That means you can triple $64,800 to get a clearer picture of what the annual income requirements would be in order to comfortably afford a $900,000 home: approximately $194,400, at a bare minimum.
Can I afford a 500k house on an 80k 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.
