What House Can I Afford With a $150k Salary?

A $150,000 salary provides a strong foundation for homeownership, but determining how much house you can afford requires understanding potential costs and lending criteria. This guide clarifies the financial aspects involved, including lender calculations, homeownership expenses, and initial financial outlays.

Calculating Your Potential Mortgage Amount

Lenders evaluate your financial health to determine the maximum mortgage amount you can borrow. They use the Debt-to-Income (DTI) ratio, which compares your total monthly debt payments to your gross monthly income. Lenders prefer a DTI ratio no higher than 43% to 50% for conventional loans, though some may favor 36% or less. With a gross monthly income of $12,500 from a $150,000 annual salary, a 43% DTI limit means your total monthly debt payments, including the new mortgage, should not exceed $5,375. This calculation includes existing obligations such as car loans, student loans, and credit card minimum payments.

Lenders verify your income for consistency and reliability, typically requiring recent pay stubs, W-2 forms from the past two years, and personal tax returns. For income from bonuses, commissions, or self-employment, lenders often require two years of consistent earnings and may ask for business tax returns, profit-and-loss statements, and balance sheets.

Your credit score significantly influences loan eligibility and interest rates. A higher credit score signals lower risk to lenders, often resulting in more favorable loan terms and a larger borrowing capacity. While a credit score of at least 620 is recommended for mortgage qualification, scores of 740 or higher typically unlock the most competitive interest rates.

Federal and conventional loan limits also affect the maximum loan amount, especially in certain housing markets. For 2025, the conventional loan limit for a single-unit property in most areas is $806,500. FHA loans have a national limit of $524,225, which can increase up to $1,209,750 in high-cost areas. VA loans generally do not have a set limit for eligible veterans, but a common benchmark for 100% financing can be around $2 million.

Understanding All Homeownership Costs

The monthly mortgage payment, comprising principal and interest (P&I), is one component of homeownership costs. However, several other recurring expenses significantly impact your true monthly financial commitment.

Property taxes are a substantial ongoing expense, varying by location and property value. These taxes are assessed annually by local governments and can range from under 1% to over 2% of a home’s value, adding hundreds or even thousands of dollars to monthly housing costs.

Homeowners insurance is a mandatory expense, protecting your property against damage and liability. While costs vary, they can average a few hundred dollars per month, depending on factors like the home’s value, location, construction type, and coverage limits.

Mortgage insurance, such as Private Mortgage Insurance (PMI) for conventional loans or Mortgage Insurance Premium (MIP) for FHA loans, is often required if your down payment is less than 20% of the purchase price. PMI costs are typically a percentage of the loan amount, while MIP has both an upfront fee and annual premiums.

Many properties, especially condominiums or homes in planned communities, are subject to Homeowners Association (HOA) fees. These fees cover common area maintenance and shared amenities. HOA fees vary widely, often ranging from under $100 to several hundred dollars monthly, depending on the community and amenities.

Beyond the core housing payment, utilities are a consistent monthly cost, including electricity, gas, water, sewer, and internet services. These can average several hundred dollars per month and fluctuate based on usage, home size, and local rates.

Budgeting for ongoing maintenance and unexpected repairs is also important. A general guideline suggests setting aside 1% to 4% of your home’s value annually for these costs, covering routine upkeep to major system repairs.

Estimating Your Upfront Financial Needs

Purchasing a home requires significant upfront cash. The down payment is a primary component, directly impacting your loan amount and monthly payment. Common down payment percentages include 3%, 5%, 10%, or 20% of the home’s purchase price. A larger down payment reduces the amount you need to borrow, which can lead to lower monthly mortgage payments and may eliminate the need for private mortgage insurance. The amount you put down also influences the interest rate offered by lenders.

Closing costs are another substantial upfront expense, encompassing various fees associated with finalizing the home purchase. These costs typically range from 2% to 5% of the loan amount or purchase price, meaning thousands of dollars in additional fees. Fees include charges for loan origination, appraisal, title insurance, escrow services, and recording fees. Prepaid expenses, such as a few months of property taxes and homeowners insurance premiums, are also collected at closing to establish an escrow account.

Beyond the down payment and closing costs, other initial expenses may arise shortly after purchasing a home. These can include moving costs, initial home improvements, repairs, or furnishing your new living space.

The Role of Interest Rates and Loan Types

Interest rates significantly influence the overall cost of a mortgage and your monthly payments. A lower interest rate translates to a smaller monthly payment and less interest paid over the loan’s life. Conversely, higher rates increase both the monthly obligation and the total cost of borrowing, with even small fluctuations having a substantial impact on total cost. Monitoring current market interest rates is a valuable step in assessing affordability, as these rates are dynamic and influenced by economic conditions.

Various loan types cater to different financial situations and borrower profiles.
Conventional loans: Widely available, requiring good credit, with down payments as low as 3%. A 20% down payment avoids private mortgage insurance.
FHA loans: Government-insured, designed for borrowers with lower credit scores or smaller down payments, requiring a minimum of 3.5% down.
VA loans: A benefit for eligible active-duty service members, veterans, and surviving spouses, often allowing for no down payment and competitive interest rates.
USDA loans: Target eligible rural properties, also offering no down payment options, but come with specific income and geographic restrictions.

Fixed-rate mortgages maintain the same interest rate and monthly principal and interest payment for the entire loan term, providing predictability. Adjustable-rate mortgages (ARMs) feature an initial fixed-rate period, after which the rate can adjust periodically based on market indexes. While ARMs may offer lower initial payments, the potential for future rate increases introduces payment uncertainty.

Steps to Confirm Your Affordability

Confirming your home affordability involves engaging with lenders to understand your borrowing capacity. Initial steps include pre-qualification or pre-approval, with pre-approval offering a more robust assessment. Pre-qualification provides a general estimate based on self-reported financial information.

Pre-approval is a more thorough process where a lender verifies your financial details and checks your credit. This results in a formal letter stating the maximum loan amount you may qualify for, along with estimated interest rates. Obtaining pre-approval indicates to sellers that you are a serious and qualified buyer.

The pre-approval process requires submitting various financial documents. You will need to provide personal identification, your Social Security card, recent pay stubs, and W-2 forms from the last two years. Lenders also request bank statements to verify assets and a list of your current monthly debts. For self-employed individuals, additional documentation like business tax returns and profit-and-loss statements will be necessary.