If I Make $50K a Year, How Much House Can I Afford?

Here’s how to buy a home on $50K a year

It is certainly possible to buy a home on a $50,000 salary. Homeownership is becoming more accessible for many borrowers thanks to low down payment loans and down payment assistance programs.

However, everyone’s budget is different. Even those who earn the same annual salary may have different price ranges when looking for a new home. This is due to multiple factors — including your mortgage rate, down payment, loan term, and more — impacting your budget.

So if you’ve ever wondered how to buy a home on $50K a year, here’s how to find out.

In this article (Skip to...)

• Home price examples
• What determines your budget
• Debt-to-income ratio
• Home buying tips
• Mortgage preapproval
• Ongoing homeownership costs
• FAQ

>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 your annual 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, the mortgage interest rate you qualify for will affect how much house you can afford. For those with a low or moderate income, timing your home purchase when interest rates are low is a great way to increase your home buying budget.

The example above assumes a 3% down payment and no monthly debts outside the mortgage. Rates shown are for sample purposes only. Your own interest rate and payment will vary. 

Remember, the interest rate a lender will offer you depends on your credit score and down payment, among other factors. So getting a lower 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 also significantly impacts what you can afford. Most low-down-payment mortgage loans require putting down at least 3% of the home’s value. As an example, if the home value is $180,000, a 3% down payment would be $5,400.

But the more you pay up front, the more you can borrow.

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

The examples above assume a 6% fixed interest rate on a 30-year loan and no 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 (DTI) measures your total monthly debts against your gross monthly income.

In this context, debt includes items such as minimum credit card payments, auto loans, student loans, and even your estimated mortgage payment. However, monthly bills for utilities and streaming services are not considered monthly debt payments.

Mortgage lenders use the DTI ratio to determine how much of a monthly housing payment a borrower can afford. The higher your existing monthly debt payments, the less you’ll be able to spend on your mortgage to maintain a good DTI.

Ideally, you want a 30-40% debt-to-income ratio to qualify for a mortgage loan.

While DTI requirements vary by lender, the percentages below are a good rule of thumb. (We discuss the importance of DTI ratio for borrowers on a $50K salary in more detail below.)

• Conventional loan: Up to 43% allowed, but 36% to 41% is preferred
• FHA loan: Generally, 41% to 43% (up to 50% is possible)
• VA loan: 41% is typical for most lenders
• USDA loan: 41% is standard for most lenders

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

In that case, your total debts can’t exceed $1,500. Here’s how that affects your home buying budget:

The examples above assume a 6% fixed interest rate and 3% down on a 30-year mortgage. Your own rate and monthly payment will vary. 

What factors influence how much house you can afford?

While income is often the first factor people consider when thinking about buying a home, it’s far from the only criteria that matter.

Your ability to afford a home is influenced by a variety of financial variables, each contributing to the big picture of your home-buying capacity. Here are some key factors to consider:

• Down payment: The amount you can put down upfront significantly affects the size of the mortgage you’ll need. A larger down payment can reduce your monthly payments and may open up better financing options
• Financing: The type of mortgage you choose, whether it’s a fixed-rate or adjustable-rate mortgage, will impact your monthly payments and the total cost of the loan. Different types of mortgages come with their own sets of requirements and benefits
• Credit score: Your credit score, influenced by your credit history, is crucial in determining the interest rate you’ll be offered. A higher credit score can get you a lower interest rate, making the home more affordable in the long run
• Loan-to-value ratio: This ratio, often abbreviated as LTV, compares the value of the home you’re buying to the size of your loan. A lower LTV often means you have fewer liabilities relative to the value of the home, which can make you more attractive to lenders

By considering these factors along with your income, you’ll have a more comprehensive understanding of what you can realistically afford when buying a home.

Why debt-to-income ratio is important

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

To achieve a 41% DTI ratio 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.

$50K salary and $400 in monthly debt payments: 

• 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 $20,000 down payment and 6% interest rate, you could probably buy a home for a maximum price of around $200,000 and still have a $1,300 monthly payment

$50K salary and no monthly debt payments:

• If you had no existing monthly debts, you could spend $1,700 a month on your mortgage payment and still keep a 41% DTI
• In this case, your home buying budget would increase to about $255,000, even with the same $20,000 down payment and 6% interest rate

The above scenario adds an additional $100K in home buying power. This is a result of reducing your existing monthly expenses, not an increase in your annual salary.

This is why paying off as much debt as possible should be a part of your homeownership journey.

Front-end ratios vs. back-end ratios

As you shop around between mortgage lenders, you may come across the terms front-end ratio and back-end ratio. Both are versions of the debt-to-income ratio. Essentially, they’re just another way to measure how your income and cash flow affect your monthly housing payment.

• Back-end ratio: This 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 aim for a front-end ratio of 28% and earn $50,000 a year, you could spend at most $14,000 a year on housing. That’s about $1,167 a month

As you make your own calculations, remember that your gross monthly 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.

Home affordability and your PITI percentage

Lenders use all of these percentages, along with your debts and income, to form a picture of your home buying budget that they call PITI.

PITI is an acronym that describes:

• Principal: How much of your loan’s principal you can pay each month
• Interest: How much interest you will pay to borrow each month
• Taxes: Property taxes you will pay to own a home
• Insurance: Monthly costs to insure your home (and mortgage, when applicable)

If your new home has an HOA, the dues will also be included in this calculation. Read more about PITI and how it affects how much home you can afford on $50K a year.

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

The average cost of a home in the U.S. is $402,600, according to the National Association of Realtors. However, expect to pay more for your dream home in high-cost housing markets like New York, Los Angeles, Las Vegas, Seattle, Denver, and Dallas, to name a few.

With such high home sale prices, it’s important for first-time buyers to increase their home buying power. Here are several steps you can take to do so.

1. Increase your down payment

If you have the cash, you may want to increase your down payment to 10% or 20%. A larger down payment raises your maximum home price, which may be enough to buy your desired home. 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 governments 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 payments on your credit accounts determine 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), usually required on conventional loans with less than 20% down.

4. Buy a home with a conventional loan

It’s possible to get a conventional loan with a down payment as low as 3% of the purchase price. What’s more, that down payment can often be covered with down payment assistance, a 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 scores, an FHA loan might be more appealing.

5. Buy a home with an 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.

However, 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 loans allow 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.

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

6. Improve your credit report

Conventional (non-government) loans often come with risk-based pricing, meaning if your credit score is lower than 740, you’ll pay a higher interest rate. Mortgage insurance costs also increase as your credit score decreases. These rising costs chip away at your housing price range.

This step-by-step guide may help you get a lower interest rate and lower monthly mortgage payments by improving your credit. It could also help you afford your dream home. You’ll also stand 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 your mortgage type, the seller can contribute 3% to 6% 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.

Remember that sellers in hot real estate markets are less likely to grant concessions. But if they’re motivated to sell quickly or the home inspection reveals issues, you may have room to negotiate.

8. Consider buying a multi-family home

One strategy first-time homebuyers often don’t consider is purchasing a multi-family home instead of a single-family one. By purchasing a duplex, triplex, or fourplex, you can live in one unit and rent the others out. This gives you access to primary residence loan programs with low rates and closing costs. But you also get the advantage of rental income to help 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.

Preapproval will confirm your home buying budget

One of the easiest ways to find your price range is to get a preapproval from a lender or mortgage brokerage.

Preapproval is like a dress rehearsal for your actual mortgage application. A lender will assess your financial situation without making you go through the full loan application. They’ll examine your annual salary, existing debt load, credit report, and down payment size.

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 stick with a 30-year mortgage. A pre-approval can also show whether you’d be better off with an FHA or conventional loan.

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

Home buying costs to budget for

When budgeting for the costs of buying a home, look beyond just the down payment and mortgage payments. Here are some key expenses to consider.

• Initial purchase costs: This includes the down payment, closing costs, immediate renovations or repairs, and legal fees. Some states require the involvement of real estate attorneys in the home-buying process, so that’s a potential cost to consider
• Ongoing expenses: Beyond your mortgage payments, this category encompasses utility bills, homeowner’s insurance, property taxes, and potentially homeowner’s association fees if you’re buying into a community with shared amenities
• Maintenance and repairs: Budget for both routine maintenance and unexpected repair costs. Homes require upkeep, and it’s better to be prepared.
• Personal financial obligations: If you have other significant financial responsibilities, like child support, these will continue after you buy a home and should be included in your budget.

To get a better idea of how much home you’ll be able to afford on a $50,000 a year income, try a mortgage calculator. You can get a more realistic picture of what you’ll need to budget for when buying a home.

FAQ: How to buy a home on $50K a year?

How to buy a home on $50K a year

Two borrowers making $50,000 a year might have very different home-buying budgets, as the examples above demonstrate. To determine how much house you can afford, consider your income, debts, down payment savings, and projected housing costs such as homeowners insurance and property taxes.

Mortgage interest rates are rising, according to Black Knight market data. However, locking in a rate now could save you money later. When you’re ready to begin your home buying process, experiment with a home affordability calculator.

Doing so will help you see how down payments and interest rates will affect the amount of money you’ll need to buy a home. Check out available programs from several lenders to see how much house you can afford.