If I make $50K a year, how much house can I afford?

Michele Lerner
The Mortgage Reports contributor

Find your home buying budget

It’s definitely possible to buy a house on $50K a year. For many borrowers, low-down-payment loans and down payment assistance programs are making homeownership more accessible than ever.

But everyone’s budget is different. Even people who make the same annual salary can have different price ranges when they shop for a new home. 

That’s because your budget doesn’t just depend on your annual salary, but also on your mortgage rate, down payment, loan term, and more. Here’s how to find out what you can afford.

Verify your home buying budget (Oct 27th, 2021)

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>Related: How to buy a house with $0 down: First-time home buyer

If I make $50K a year, how much house can I afford? 

A person who makes $50,000 a year might be able to afford a house worth anywhere from $180,000 to nearly $300,000.

That’s because salary isn’t the only variable that determines your home buying budget. You also have to consider your credit score, current debts, mortgage rates, and many other factors. 

Just to show you how much these different variables can affect your home buying power, take a look at a few examples below. 

Home affordability by interest rate

Regardless of your annual salary, your mortgage interest rate will affect how much house you can afford. 

For those who with a low or moderate income, timing your home purchase for when interest rates are low is a great way to increase your home buying budget. 

Annual Income Desired Monthly PaymentInterest Rate (30-Year Fixed) How Much House You Can Afford
$50,000$1,3004.5%$217,900
$50,000$1,3004.0%$228,800
$50,000$1,3003.5%$240,500
$50,000$1,3003.25%$246,600

The example above assumes a 3% down payment and $200 in monthly debts outside the mortgage. Rates shown for sample purposes only. Your own interest rate and payment will vary. 

Remember, your interest rate depends on your credit score and down payment, among other factors. 

So getting the lowest interest rate isn’t just a matter of timing the market; it’s also important to present a strong application and shop around for the best deal. 

Home affordability by down payment 

Your down payment amount also has a big impact on what you can afford. Most low-down-payment mortgage loans require at least 3% down. But the more you pay up front, the more you’re allowed to borrow. 

For example, here’s how much a home buyer making $50,000 a year might afford depending on their down payment savings: 

Annual Income Desired Monthly Payment Down PaymentHow Much House You Can Afford
$50,000$1,300$7,300 (3%)$234,800
$50,000$1,300$13,200 (5%)$263,268
$50,000$1,300$28,500 (10%)$285,680

The examples above assume a 3.75% fixed interest rate on a 30-year loan, and $200 in monthly debts outside the mortgage. Your own rate and monthly payment will vary. 

Home affordability by debt-to-income ratio

Your debt-to-income ratio measures your total monthly debts — including your mortgage payment — against your monthly income. The higher your existing monthly debts, the less you’ll be able to spend on your mortgage to maintain a “healthy” DTI. 

For example, say you make $50,000 a year and want to stay at a 36% DTI. 

In that case, your total debts, including mortgage and any other debt payments (like auto loans or student loans) can’t exceed $1,500. Here’s how that affects your home buying budget: 

Annual Income Monthly DebtsDesired Mortgage PaymentHow Much House You Can Afford
$50,000$0$1,500$270,600
$50,000$200$1,300$234,500
$50,000$500$1,000$180,406

The examples above assume a 3.75% fixed interest rate and 3% down on a 30-year mortgage. Your own rate and monthly payment will vary. 

Verify your home buying budget at today's rates (Oct 27th, 2021)

How to calculate your home buying budget on a $50,000 salary

As you can see in the examples above, two different borrowers who both earn $50,000 a year could have very different home buying budgets. 

To figure out how much house you can afford, you need to factor in your own income, debts, down payment savings, and projected housing costs like homeowners insurance and property taxes.

Remember, principal and interest on the mortgage aren’t the only costs you’ll pay each month as a homeowner. 

Luckily, you don’t have to do all that math on your own. You can use an online mortgage calculator — one that includes taxes and insurance — to estimate your monthly mortgage payment. 

Why your debt-to-income ratio is key 

While many factors impact the amount you can borrow, your debt-to-income ratio (DTI) is essential to the equation.

DTI compares your monthly gross household income to the monthly payments you owe on all your debts — including housing expenses. The standard maximum DTI for most mortgage lenders is 41 percent.

To achieve a 41 percent DTI with a $50,000 annual income ($4,167 per month), you couldn’t exceed $1,700 a month in housing and other debt payments.

The less you spend on existing debt payments, the more home you can afford — and vice-versa.

Say $400 of your monthly debt payments go to a car loan, a student loan, and minimum payments on your credit card debt. In this case, you would have $1,300 to spend on housing.

With a $10,000 down payment and 4% interest rate, you could probably buy a home for a maximum price of around $200,000 and still have a $1,300 monthly payment.

If you had no existing monthly debts, you could spend $1,700 a month on your mortgage payment and still keep a 41 percent DTI.

In this case, your home buying budget would increase to about $300,000 — even with the same $10,000 down and 4% interest rate.

That’s an additional $100K in home buying power all because of a reduction in your existing monthly expenses — not an increase in your annual salary. 

Front-end vs back-end ratios

As you shop around between mortgage lenders, you may come across the terms “front-end ratio” and “back-end ratio.”

This is just another way to measure how your income and cash flow affects your housing budget.

  • Back-end ratio: Works like your debt-to-income ratio which we discussed above — it compares your existing monthly debt payments, including your mortgage, to your monthly gross income
  • Front-end ratio: Measures your housing costs alone as a percentage of your gross income. If you were aiming for a front-end ratio of 28%, and you earned $50,000 a year, you could spend no more than $14,000 a year on housing. (That’s about $1,167 a month)

As you make your own calculations, remember that your gross income is the amount you earn before income tax or medical insurance deductions. For most people, gross income is a bigger number than take-home pay.

Check your home buying eligibility with a lender (Oct 27th, 2021)

8 ways to increase your home buying budget on $50K a year

In today’s competitive real estate market, home prices are rising quickly. That means you might need to make a higher offer — and increase your loan amount — in order to afford the home you want.

There are several steps you can take to increase your home buying power.  

1. Increase your down payment

If you have the cash, you may want to up your down payment to 10 or 20 percent. A down payment raises your maximum home price, which may be enough to buy a home that you want.

If you don’t have the cash, keep in mind that you can ask relatives for gift money.

You can also apply for homebuyer assistance programs from state and local government programs that provide down payment and closing cost funds. Your eligibility for these programs may vary based on your personal finances.

2. Pay down some of your existing debt

The minimum payment on your credit accounts determines your debt-to-income ratio. By paying down your credit card debt or eliminating a car payment, you can qualify for a bigger home loan.

For example, in the scenario above, reducing your monthly obligations by $200 could increase your maximum price from $234,000 to $270,600.

3. Use a piggyback loan to put 20% down

Another strategy that could help increase your budget is to finance your home with two different home loans simultaneously. This strategy is known as an ’80-10-10 loan’ or ‘piggyback loan.’

An 80-10-10 mortgage means you’d get:

  • A first mortgage for 80% of the home’s cost
  • A second mortgage for 10% (usually a home equity line of credit)
  • A cash down payment of 10%

This gives you the benefit of having a bigger home buying budget (thanks to the larger down payment). It also eliminates the need for private mortgage insurance (PMI), which is usually required on conventional loans with less than 20% down. 

4. Try a 3%-down conventional loan

It’s possible to get a conventional loan — one backed by Fannie Mae or Freddie Mac — with a down payment as low as 3% of the purchase price. What’s more, that down payment can often be covered with a down payment assistance grant or gift funds from a family member. 

Just note that to qualify for a 3%-down conventional loan, most lenders require a credit score of at least 620 or 640. For those with lower credit, an FHA loan might be more appealing. 

5. Try a 3.5%-down FHA loan

FHA-insured loans allow a 3.5% down payment as long as the applicant has a FICO score of 580 or higher. Those with FICOs between 500 and 579 must put 10% down.

FHA mortgage insurance can make these loans more expensive. They require both an upfront premium and a monthly addition to your loan payment.

Still, FHA allows for much higher debt-to-income ratios compared to conventional loans. Sometimes, you can use up to 50% of your before-tax income or more toward your FHA loan payment.

Plus, you could always refinance out of the FHA loan later to eliminate these mortgage insurance fees.

6. Increase your credit score

Conventional (non-government) loans often come with risk-based pricing, which means if your credit score is lower than 740, you’ll pay a higher interest rate on your loan.

Mortgage insurance costs also increase as your credit score decreases. These rising costs chip away at your housing price range.

Take steps to raise your score. It could mean you can lower your interest rate and therefore your monthly mortgage payments. And it could mean you qualify for a larger loan amount.

You’ll also have a better chance of qualifying for a loan program with a higher debt-to-income ratio if your score is higher.

7. Negotiate with the seller

There is no reason you can’t ask for seller contributions instead of negotiating for a lower purchase price. Depending on the type of mortgage you choose, the seller can contribute 3 to 6 percent of the home price in closing costs.

This can make all the difference when you want to buy a new home and stop renting. Seller contributions can cover closing costs, buy your interest rate down to a more affordable level, or make a one-time payment to cover your mortgage insurance.

8. Consider buying a multi-family home 

One strategy first-time homebuyers often don’t consider is buying a multi-family home instead of a single-family one.

By purchasing a duplex, tri-plex or four-plex, you can live in one unit and rent the others out. This gives you access to primary residence loan programs with low rates and costs, but you also get the advantage of rental income to pay your mortgage.

You can even use a low-rate VA loan or FHA mortgage as long as you live in one of the units.

Getting pre-approved can tell you your home buying budget

One of the easiest ways to find your price range is to get a pre-approval from a mortgage lender.

Pre-approval is kind of like a dress rehearsal for your actual mortgage application. A lender will assess your financial situation — as shown by your annual salary, existing debt load, credit score, and down payment size — without making you go through the full loan application.

This can tell you whether you’re qualified for a mortgage and how much home you might be able to afford.

You could also learn whether you can afford a 15-year loan term or whether you should stick with a 30-year mortgage. And, a pre-approval can show whether you’d be better off with an FHA loan or a conventional loan.

Finally, your pre-approval shows you the added monthly costs of homeownership such as home insurance, real estate taxes, HOA fees, and mortgage insurance if necessary.

What are today’s mortgage rates?

Today’s low mortgage rates go a long way toward making houses affordable to those with moderate incomes. Check out available programs and see how much home you can buy.

Verify your new rate (Oct 27th, 2021)