How Much House Can I Afford On $120K?

With news reports of home prices seemingly always on the rise and interest rates sticking stubbornly at elevated levels, it can be easy to see the challenge to buying a house in the current market. But you’ve landed here because you’re asking yourself, “How much house can I afford on a $120K salary?” We have a stat that should be encouraging:

According to data for 2023 from the U.S. Census Bureau, the median household income is $80,610. Everyone has a different lifestyle, and you could always use more money. But if you’re making $120,000, you can feel pretty good about your situation and the resources you might have to buy a house with the right budgeting practices.

The Budget Range

Speaking hypothetically, your budget range for a home on a $120,000 salary is $285,088 – $440,771. This is based on buying in Atlanta with $25,000 saved and $1,225 in monthly debt (national average) with a credit score of at least 720. The interest rate is 7.125%. Assumed taxes and a $67 monthly homeowners insurance premium were included.

Every situation is different. So much goes into determining what you can afford that the only right answer can be provided by a Home Loan Expert when you apply and a lender goes deep on your financial situation. Without doing that, the answer is always, “It depends.” This is both true and deeply unsatisfying.

We’ll get more into this later, but for now, know that any decent mortgage calculator is going to give highly variable results based on the following factors:

• The area you’re looking to buy
• Your income
• Amount of cash on hand
• Self-assessed credit score

You can put in your own numbers with our Home Affordability Calculator to get an idea of how much buying power you have prior to diving into the mortgage process.

How To Estimate How Much House You Can Afford On A $120K Salary

Every lender has slightly different standards when it comes to judging how much you can afford, but there are some general rules you can rely on. We’ll go over these and then discuss what it looks like if you tweak some of the variables.

What Percentage Of My Income Should I Put Toward A Mortgage?

One of the most common guideposts is the 28/36 rule. The idea here is that you spend no more than 28% of your pretax income on your monthly mortgage payment and no more than 36% of your income on your overall debts.

It’s important to remember that your house payment is more than the cost of the loan itself. It also includes taxes, mortgage insurance and homeowners insurance.

Once you do this calculation, you can then add back in the rest of your debts to come up with your overall debt-to-income ratio. Here are the formulas for the ratios, starting with the housing expense ratio:

Principal + Interest + Taxes + Homeowners Insurance

___________________________________________________ × 100

Pretax Monthly Income

Mortgage insurance and homeowners association fees may be included in the above, but not everyone has them. There is no mortgage insurance at all on conventional loans for single-unit primary residences if you make a 20% down payment.

Here’s the formula for DTI:

Total Debts

_________________________ ×100

Pretax Monthly Income

Your total debts include not just your mortgage payment, but also things like student loans and personal loans, car payments and the minimum amount due on credit cards.

The 28/36 rule isn’t the only one that’s helpful to know when it comes to the percentage of income toward a mortgage. For FHA and VA loans, it’s quite common for the standard to be that you spend no more than 38% of your budget on housing and 45% on total debts. For conventional loans, you usually want to keep your DTI under 43%.

Mortgage Breakdown On A $120K Salary

So we’ve gone over what a mortgage payment looks like in one very specific situation to give you a general idea, but what happens if we play with the numbers a bit?

We’ve kept the interest rate the same at 7.125% because it may go up or down, but you don’t control that. You can control the debt you have and your down payment. Let’s look at several scenarios: