“How much house can I afford on $50,000 a year?”
The short answer to that question is: It depends.
The long answer is that while income is a big factor in how much house you can afford, it’s not the only one.
In fact, your monthly debts can influence your affordability almost as much as income. And there are other elements at play as well, including your credit score, the size of your down payment, and your interest rate.
We’ll break down all the key components so you can get a better idea of how much house you can afford on $50,000 a year.
- Income is only one factor in how much house you can afford
- Debt-to-income ratio, credit score, and down payment also affect how much you can borrow to buy a home
- Paying down debt and saving for a larger down payment are two ways to increase how much house you can afford
What's in this Article?
The only way to know for sure how much house you can afford, on $50,000 a year or on any salary, is to get preapproved with a mortgage lender.
Preapproval tells you whether you qualify for a home loan, which loan programs are available to you, and how much a lender will let you borrow.
So if you’re in the market for a home, the first step is to get preapproved.
Having said that, you can get an idea of how much you can afford even before applying for preapproval by crunching the numbers in a home affordability calculator like the one below.
You can enter your annual income, your down payment amount, monthly debts, and your desired loan term (either 15 or 30 years).
The number you see in the calculator is just an estimate – your lender will do a deep dive into your finances to determine your actual eligibility with a personalized interest rate. But it will give you a ballpark idea of how much you might be able to afford so that you can start looking at homes in your budget.
5 things that affect how much you can afford
How much can house can you afford on a $50,000 salary?
Well, a $50,000 a year salary works out to about $4,167 a month before taxes and deductions.
That’s the starting point for figuring out how much you can afford. Your lender has to make sure that you can afford your monthly mortgage payment alongside your other expenses, including other debts.
Here’s are 5 things lenders look at to see how much house you can afford:
As we said, the mortgage affordability equation starts with income. Your lender will look at your gross monthly income – which means your income before taxes and deductions – when determining how much you can afford for your housing payment.
You can use several sources of income to qualify for a mortgage, including:
- Employee wages
- Overtime, commissions, and bonuses
- Self-employment income from freelancing, a business you own, or side gigs
- Investment income and dividends
- Rental property income
- Disability benefits income
- Social Security income
- Child support
DTI is another important metric that lenders use if you can afford the mortgage or not. Your DTI is your total monthly debts divided by your gross monthly income.
There are two kinds of DTI: Front-end and back-end.
- Front-end ratio: Housing debt payments vs income
- Back-end ratio: Housing + non-housing payments vs income
Front-end DTI ratio example:
- Gross monthly income = $4,167
- Principal and interest payment = $1,000
- Property taxes = $250
- Property insurance = $50
This borrower’s total monthly housing cost equals $1,300.
$1,300 (total monthly debts) ÷ $4,167 (gross monthly income) = 31% front-end DTI
That’s before all other debt payments. When you apply for preapproval, your lender must ensure that your back-end DTI (all payments) meets the requirements for your loan program.
Now let’s look at the back-end DTI for this borrower.
Back-end DTI ratio example:
- Monthly credit card payment = $50
- Monthly student loan payment = $200
- Monthly car payment = $250
$1,800 ($500 total debt payments plus $1,300 future housing payment) ÷ $4,167 income = 43%
Maximum back-end DTI requirements are as follows:
There is some flexibility on DTI for certain loan programs. Lenders may be able to approve you for a VA, USDA, or FHA loan with higher DTIs, if you are otherwise creditworthy and meet the program eligibility requirements.
DTI helps your lender ensure that you’re not overleveraged – in other words, that you’re not stretched too thin financially. They need to know you can afford your mortgage payment, and if your DTI is too high, you will be at a higher risk of defaulting on your home loan.
Your credit score is another critical factor in how much home you can afford. Lenders will pull your credit report when you apply for preapproval, and your score will determine which loan programs you qualify for. It can also affect your interest rate.
Your FICO credit score, which is the score used by mortgage lenders, is based on several elements, including:
- Payment history
- Credit utilization ratio (how much of your credit is currently in use)
- Age of credit (how long your credit accounts have been open)
- Credit mix (types of credit accounts you have)
- Number of recently opened credit accounts (fewer is better)
Lenders use your FICO score to determine whether you’re likely to be a reliable or high-risk borrower. Homebuyers with higher credit scores may qualify for competitive interest rates. Those who have low or fair credit scores may qualify for a loan, but they may pay more interest to make up for their perceived risk.
The minimum credit score requirements for popular mortgage programs are:
- Conventional loan: 620
- FHA loan: 580 with a 3.5% down payment; 500 with a 10% down payment
- VA loan: 580
- USDA loan: 640 (some lenders allow a lower score)
Your down payment also affects how much home you can buy because it affects how much your lender can approve you to borrow.
The higher your down payment, the more skin you have in the game – and the lower your lender’s risk. Not only do you have more invested in the home upfront, you’re also taking on less debt that needs to be repaid.
There are a number of low down payment loan programs that are especially advantageous to first-time homebuyers:
Many homebuyers take the low down payment option so they can buy a home sooner, rather than saving up the traditional 20%. But if you are able to put down more than the minimum, you may qualify for a larger loan.
What makes up your monthly mortgage payment?
We’ve referenced your monthly mortgage payment a few times now. But what exactly does that payment include? You might be surprised to learn that it’s more than just your loan principal and interest.
5 things that make up your monthly mortgage payment:
- Principal: The principal is the portion of your payment dedicated to paying off the loan balance. When you first start making payments, only a small portion of the monthly mortgage installment goes toward the principal. The majority goes to interest during the first years of the loan
- Interest: The interest rate is how much you pay to borrow the money to buy your home
- Taxes: The tax portion of your monthly mortgage payment refers to your state and local property taxes. This money is used to support local schools, public libraries, local fire departments, police, and community development projects. Your tax rate depends on where you live
- Insurance: The insurance part of the mortgage payment can refer to your homeowners’ insurance, which is a requirement for all homeowners, as well as mortgage insurance. If you put down less than 20% on a conventional loan, you may owe private mortgage insurance (PMI) until you reach 20% home equity. If you took out an FHA or USDA loan, you may pay annual mortgage insurance for the life of the loan
- Homeowners association dues and other fees: If the home you buy is governed by a homeowners association (HOA) or condo association, you may owe HOA dues, which will be factored into your monthly payment amount as well
Not liking the results you’re seeing on the mortgage calculator? Here are some tips for how to increase how much house you can afford.
We discussed how the higher your credit score, the better shot you have at getting a lower interest rate and getting approved for a larger loan.
Here are some tips to increase your credit score:
- Pay your bills on time
- Ensure your credit utilization is not more than 30 percent of your credit limit. For example, if your credit card limit is $8,000 per month, make sure your balance is $2,400 or less at any given time
- Dispute inaccurate information in your credit report
- Don’t apply for new credit unless you absolutely have to
- Become an authorized user on someone else’s credit card account (but make sure they have good credit and make their payments on time
With housing prices going up, it’s typically better to buy sooner with a lower down payment than to wait and purchase with a higher down payment (if you’re financially ready to buy a home, that is).
As housing prices and interest rates rise, you may get approved for less money because your monthly mortgage payment will increase. You can always double up on mortgage payments or refinance to a shorter loan term later on if you want to save money.
But if you’re not planning to buy for another while, save up as much money as you can for your down payment. Remember, the more you put down, the more you may be able to borrow.
DTI is a major contributor to how much house you can afford.
So, if you want to increase your odds of getting your mortgage approved, pay down as much debt as you can. Make a list of your monthly expenses, and eliminate unnecessary spending so you can put more money toward your debts.
Focus on debt with the biggest payment first. For instance, if you have $500 car payment with a $7,000 balance, focus on paying that off. That would reduce your DTI by about 12% (from, say, 50% to 38%) on a $50,000 per year salary, potentially putting you within qualifying range.
If you’re struggling to find a home you like in your price range, consider expanding your search area. Not everyone will be able to do this, but if it’s feasible for you, consider looking at homes in areas that aren’t quite as popular but can still meet your needs.
You might also look at towns or counties that are in close proximity to your preferred location but which have lower tax rates, as your property taxes affect your total DTI and your home affordability.
There is no single answer to the question, “How much house can I afford on $50,000 a year?” It really comes down to your finances and your other obligations. The best place to start is getting preapproved so you know how much you can borrow and which loan programs will work best for you.
This article does not constitute tax advice. Please consult a tax advisor regarding your specific situation. Fairway is not a registered or licensed credit management service provider.
*Pre-approval is based on a preliminary review of credit information provided to Fairway Independent Mortgage Corporation, which has not been reviewed by underwriting. If you have submitted verifying documentation, you have done so voluntarily. Final loan approval is subject to a full underwriting review of support documentation including, but not limited to, applicants’ creditworthiness, assets, income information, and a satisfactory appraisal. †A down payment is required if the borrower does not have full VA entitlement or when the loan amount exceeds the VA county limits. VA loans subject to individual VA Entitlement amounts and eligibility, qualifying factors such as income and credit guidelines, and property limits. ‡USDA Guaranteed Rural Housing loans subject to USDA-specific requirements and applicable state income and property limits.