How Much House Can I Afford on a $90k Salary?

Determining how much house you can afford involves more than just your salary. A $90,000 income provides a strong foundation, but a thorough financial assessment is necessary. This includes analyzing your income, existing debts, and all homeownership costs. Understanding these factors helps you make informed decisions.

Your Starting Financial Picture

Lenders assess your gross income, which is your income before taxes and deductions, to determine borrowing capacity. With a $90,000 annual salary, your gross monthly income is $7,500. While gross income is important for qualification, your net income is what you budget from.

Existing debts like student loans, car loans, and credit card payments reduce the income available for a mortgage. These recurring financial commitments are factored into your overall debt burden.

Lenders use the debt-to-income (DTI) ratio, comparing total monthly debt payments to gross monthly income. The 28/36 rule suggests housing expenses should not exceed 28% of gross income, and total debts, including housing, should not exceed 36%. For a $90,000 salary, this means housing costs are ideally no more than $2,100 per month, and total debts no more than $2,700. Some lenders allow higher DTI ratios, but lower percentages provide more financial flexibility.

Comprehensive Homeownership Costs

The monthly housing expense includes four main components: Principal, Interest, Property Taxes, and Homeowners Insurance, often abbreviated as PITI. The principal and interest portions are calculated based on your loan amount, the interest rate, and the loan term, usually 15 or 30 years.

Property taxes vary significantly by location and property value, directly impacting your monthly payment. Homeowners insurance is a mandatory requirement, protecting against damage and providing liability coverage. For down payments less than 20%, private mortgage insurance (PMI) for conventional loans or a mortgage insurance premium (MIP) for FHA loans is required until specific equity thresholds are met.

Other recurring costs include Homeowners Association (HOA) fees found in planned communities or condominiums, covering shared amenities and maintenance. Utilities like electricity, water, gas, and internet are ongoing expenses. Budgeting for ongoing maintenance and unexpected repairs is also prudent, with many advisors recommending setting aside 1% to 3% of the home’s value annually.

Upfront costs include the down payment, a percentage of the home’s purchase price paid at closing. This directly impacts the loan amount and can influence the need for mortgage insurance. Down payment percentages range from 3% to 20% or more, with 20% allowing buyers to avoid PMI. Closing costs are additional fees incurred at the end of the transaction, covering items like appraisal and loan origination fees. These costs range from 2% to 5% of the loan amount.

Lender Qualification Factors

Lenders assess your financial health to determine the maximum loan amount. Your credit score is a primary factor, reflecting your history of managing debt and making timely payments. A higher credit score indicates lower risk, often resulting in more favorable interest rates and better loan terms. This can significantly reduce your monthly payments and increase affordability.

Prevailing interest rates also play a substantial role in determining how much house you can afford. Even a small change in the interest rate can significantly alter your monthly mortgage payment and, consequently, the total loan amount for which you qualify. Interest rates can fluctuate based on market conditions, so understanding current rates is important when evaluating affordability.

Various loan programs cater to different borrower profiles, each with specific requirements. Conventional loans require a good credit score and offer flexible down payment options. FHA loans allow for lower credit scores and smaller down payments but require mortgage insurance. VA loans, for eligible veterans, often feature no down payment and no mortgage insurance. Each loan type has different debt-to-income limits and credit score requirements.

Some lenders may require cash reserves after closing, often equivalent to a few months of mortgage payments. These reserves provide a financial cushion and assure the lender of your ability to manage unexpected expenses. Lenders synthesize all these factors—income, existing debts, credit score, loan program, and available reserves—to calculate your final DTI and establish the maximum loan amount.

The Mortgage Pre-Approval Process

After assessing your financial picture and understanding costs, pursue mortgage pre-approval. This is a conditional commitment from a lender, indicating how much you are likely to be approved to borrow. It provides a realistic estimate of your borrowing capacity, though it is not a final loan approval.

To begin pre-approval, lenders request financial documents. Provide recent pay stubs, W-2 forms, and possibly tax returns to verify income and employment history. Bank and investment account statements are also commonly required to confirm assets for a down payment and closing costs. You will also need to provide identification.

The process involves completing a mortgage application, which authorizes the lender to conduct a credit check. This “hard inquiry” on your credit report allows the lender to review your credit history and score, which are factors in determining loan eligibility and interest rates. After submitting all required documentation, the lender will review your financial profile to determine the maximum loan amount you qualify for.

A successful pre-approval results in a letter stating the maximum loan amount the lender is willing to offer. This letter is a valuable tool when house hunting, demonstrating to real estate agents and sellers that you are a serious and qualified buyer. Pre-approval letters have an expiration date, often 60 to 90 days, after which you may need to update your financial information.