How Much House Can I Buy With a 120k Salary?

Understanding how much house you can afford involves more than just your annual salary. While a $120,000 income provides a strong financial foundation, other factors significantly influence the amount a lender will provide and what you can comfortably afford. The home-buying process requires a comprehensive assessment of your financial health.

Lender Affordability Guidelines

Lenders use specific financial ratios to evaluate a borrower’s capacity to repay a mortgage. A common guideline is the 28/36 rule, which suggests that housing expenses should not exceed 28% of your gross monthly income, and total debt obligations, including housing, should not exceed 36% of your gross monthly income. This rule breaks down into two main components: the front-end ratio and the back-end ratio, also known as the debt-to-income (DTI) ratio.

For a gross annual salary of $120,000, your gross monthly income is $10,000. Applying the 28% front-end ratio, your maximum monthly housing payment, which typically includes principal, interest, property taxes, and homeowner’s insurance, should be no more than $2,800. The 36% back-end ratio means your total monthly debt payments, encompassing housing costs plus other debts like credit card minimums, student loans, and car payments, should not exceed $3,600. While these percentages are widely used benchmarks, some lenders may approve higher DTI ratios depending on other strong financial factors.

Personal Financial Factors

Beyond lender guidelines, your individual financial circumstances play a significant role in determining your home-buying power. Your down payment directly impacts the loan amount, loan-to-value (LTV) ratio, and whether private mortgage insurance (PMI) will be required. First-time homebuyers often make a median down payment of 9%, while the median for all buyers is around 18% of the home’s purchase price. A larger down payment can reduce your monthly mortgage payment and may help secure a lower interest rate, as it signifies less risk to the lender.

Your credit score is another influential factor, directly affecting the interest rate you receive on your mortgage. A credit score of 740 or higher generally qualifies you for the most favorable rates, while scores below 620 might lead to higher interest rates or fewer loan options. Existing debt obligations, such as student loans, car loans, and credit card balances, contribute to your overall debt-to-income ratio. Even with a good credit score, a high DTI due to these existing debts can limit the mortgage amount you qualify for. The prevailing interest rate environment also significantly impacts monthly payments; for example, as of August 2025, the average 30-year fixed mortgage interest rate is around 6.60% to 6.71%.

Beyond the Mortgage Payment

The principal and interest payment is only one part of the total cost of homeownership. Property taxes are a substantial ongoing expense that varies widely by location and the assessed value of the home. These taxes are typically paid monthly as part of your mortgage escrow. Homeowner’s insurance, which protects against property damage, is another mandatory cost, with national averages ranging from approximately $2,110 to $2,397 per year.

Private Mortgage Insurance (PMI) is usually required if your down payment is less than 20% of the home’s value. PMI protects the lender, not the homeowner, and is typically paid monthly until you reach 20% equity in your home, or automatically ceases at 22% equity. Homeowner’s Association (HOA) fees are common in many communities, covering the maintenance of shared amenities and common areas. These fees can range significantly, with national averages reported between $170 and $293 per month, but can exceed $1,000 in some areas.

Closing costs, fees paid at the close of the real estate transaction, typically range from 2% to 5% of the loan amount and include items like origination fees, appraisal fees, and title insurance. Budgeting for ongoing home maintenance and unexpected repairs, often estimated at 1% to 4% of the home’s value annually, is important.

Determining Your Buying Power

To gain a clear understanding of your home-buying capacity, taking steps with a lender is important. The process often begins with getting pre-qualified or pre-approved for a mortgage. Pre-qualification offers an estimate of what you might afford based on a quick review of your finances, while pre-approval involves a more thorough assessment of your credit and financial documents by a lender, resulting in a conditional commitment for a loan amount.

For pre-approval, you will need to gather several financial documents. This typically includes recent pay stubs, W-2 forms from the past two years, bank statements, and tax returns for the last two years. Lenders also require statements for any existing debts, such as student loans or car payments, and proof of assets to cover the down payment and closing costs. While online mortgage calculators can provide preliminary estimates, obtaining a formal pre-approval from a lender offers a more accurate and personalized assessment, demonstrating to sellers that you are a serious and qualified buyer.