If I Make $90,000 a Year, How Much House Can I Afford?

Buying a home is a significant financial milestone. Understanding how much house you can afford involves more than just your annual income. It requires assessing existing debts, creditworthiness, and specific homeownership costs. This comprehensive view helps establish your financial capacity, guiding you toward a sustainable investment.

Core Factors Determining Affordability

Lenders evaluate a borrower’s financial health using key metrics to determine mortgage eligibility and the maximum loan amount. The debt-to-income (DTI) ratio is a significant factor, expressed as two percentages. The “front-end” ratio, often around 28%, indicates the portion of gross monthly income allocated to housing expenses (principal, interest, taxes, and insurance). The “back-end” ratio, commonly 36%, includes all recurring monthly debt payments, such as car loans, student loans, credit card minimums, and the proposed housing payment. While these are common guidelines for conventional loans, some lenders may approve higher DTI ratios, sometimes up to 50% under certain conditions, particularly for FHA loans.

A strong credit score significantly influences the mortgage interest rate, directly impacting borrowing costs and monthly payments. Higher scores generally lead to lower interest rates, reducing the total amount paid over the loan’s life. Conversely, a lower credit score might result in a higher interest rate or stricter lending terms.

The down payment also plays a substantial role in affordability and loan terms. A larger down payment reduces the loan amount, lowers monthly principal and interest payments, and can often eliminate Private Mortgage Insurance (PMI) if it reaches 20% or more of the home’s purchase price.

Current interest rates significantly determine home affordability. Even slight fluctuations can lead to notable changes in monthly mortgage payments and the maximum home price you can afford. For instance, a half-point interest rate increase on a substantial loan can add nearly $100 to the monthly payment. Monitoring these rates is important for assessing purchasing power.

Components of Your Monthly Housing Payment

A monthly housing payment extends beyond just the loan’s principal and interest. PITI represents the four primary components: Principal, Interest, Property Taxes, and Homeowners Insurance. Principal reduces the loan balance, while interest is the cost of borrowing.

Property taxes are levied by local governments based on the home’s assessed value. These taxes vary significantly by location, often ranging from less than 0.5% to over 1.8% of a home’s value annually. Homeowners insurance protects against property damage and liability, with average costs around $176 to $218 monthly.

Private Mortgage Insurance (PMI) is an additional cost incurred when a down payment is less than 20% of the home’s purchase price. This insurance protects the lender if the borrower defaults, typically ranging from 0.5% to 1.5% of the original loan amount annually.

Homeowners Association (HOA) fees are common in planned communities, condominiums, and some single-family home developments, covering common area maintenance and amenities. While not part of the PITI calculation, HOA fees directly impact the total monthly housing expense and must be factored into your budget. Other ongoing costs, such as utilities and home maintenance, are also important monthly budget considerations, though not included in the lender’s PITI calculation for qualification.

Calculating Your Home Affordability

With an annual income of $90,000, your gross monthly income is $7,500. Using the common 28% “front-end” DTI rule, your maximum monthly housing payment (PITI) should not exceed $2,100 ($7,500 x 0.28). This figure guides lenders in assessing your mortgage payment capacity. However, the total debt-to-income ratio, typically capped around 36% of gross income, also considers all other monthly debt obligations, such as car payments or student loans.

To illustrate, assume a current average 30-year fixed mortgage interest rate of 6.55%. For property taxes, estimate 1.0% of the home’s value annually, and homeowners insurance around $200 per month. Targeting the $2,100 maximum monthly housing payment, we can estimate an affordable home price.

Consider a scenario with a 20% down payment, which helps avoid PMI. If your total PITI is $2,100, and we estimate property taxes at 1.0% of the home value and insurance at $200/month, the remaining amount is for principal and interest. For a home priced around $350,000, a 20% down payment ($70,000) leads to a $280,000 loan. At 6.55% interest, the principal and interest payment on a $280,000 loan would be $1,770 per month. Adding estimated $292 for property taxes ($350,000 x 0.01 / 12) and $200 for insurance, the total PITI would be $2,262. This exceeds the $2,100 guideline, suggesting a lower home price or a more aggressive DTI application.

Adjusting the home price, a $325,000 home with a 20% down payment ($65,000) results in a $260,000 loan. The principal and interest payment at 6.55% would be $1,647. Property taxes would be $271 per month ($325,000 x 0.01 / 12), and insurance remains $200. This totals $2,118, closer to the $2,100 guideline. If a lower down payment is made, such as 10% on a $325,000 home ($32,500 down, $292,500 loan), the principal and interest payment would be higher, plus you would incur PMI, further increasing the monthly cost. A 10% down payment would result in a principal and interest payment of $1,854, plus PMI (e.g., 0.75% of $292,500 annually = $183/month), taxes ($271), and insurance ($200), totaling $2,508.

These calculations demonstrate that with a $90,000 annual income and a 20% down payment, an affordable home price could range from $300,000 to $325,000, depending on tax and insurance rates in a given area. A down payment below 20% would necessitate a lower home price to maintain the same monthly payment budget due to added PMI. Actual affordability will depend on individual financial circumstances and specific lender requirements.

Essential Upfront Costs Beyond the Down Payment

Beyond the down payment, homebuyers must prepare for additional upfront expenses known as closing costs. These fees finalize the mortgage and transfer property ownership, typically ranging from 2% to 5% of the total loan amount. For a $280,000 loan, this could mean an additional $5,600 to $14,000.

Common closing costs include:
Loan origination fees, which cover the lender’s administrative expenses.
Appraisal fees, paid to a professional who assesses the home’s value.
Title insurance, which protects the lender and buyer against future claims to property ownership.
Attorney fees.
Recording fees, paid to local government for documenting the sale.
Escrow fees, for managing the closing process.

Prepaid expenses are also collected at closing, including property taxes and homeowners insurance premiums paid in advance to establish an escrow account. Buyers should also budget for other initial costs, such as moving expenses, and potential immediate repairs or upgrades after taking possession. These upfront costs accumulate quickly, making it important to save beyond the down payment for a smooth transition into homeownership.