Intro:
When you're earning $100,000 per year, it's natural to wonder: "How much house can I really afford?"
The answer isn't as straightforward as you'd think. It depends heavily on how conservative or aggressive you want to be with your finances, the type of mortgage you choose, and how lenders evaluate your income.
In this comprehensive guide, we break down four key affordability methods:
We’ll also show you how to calculate your debt-to-income ratio (DTI) so you can run back-of-the-napkin numbers, even if your salary is slightly above or below $100K.
If you earn $100,000 annually, lenders divide that by 12, giving you a gross monthly income of $8,333. This number is key, because lenders use your gross (pre-tax) income—not your net income—to calculate what you can afford.
Yes, you may contribute to a 401(k), pay for health insurance, or buy groceries, but none of that matters in the eyes of the lender.
Dave Ramsey suggests spending no more than 25% of your take-home pay on housing. If you earn $100K, assuming 20% in taxes, your monthly take-home pay is about $6,666. Multiply that by 25%, and your maximum mortgage payment should be $1,666/month.
Let’s look at what that buys:
Alternative with FHA (3.5% down):
Verdict: Ramsey’s method is extremely cautious. Realistically, it limits you to entry-level housing unless you have significant savings.
This common guideline suggests:
With $8,333/month in gross income:
Conventional with 20% down:
FHA with 3.5% down:
Verdict: More breathing room than Ramsey and widely accepted by lenders.
Conventional loans can go up to 49.99% DTI in certain scenarios, meaning nearly half your gross income can go toward housing and debt.
Verdict: More purchasing power for those with high credit and no monthly debt.
FHA loans allow:
Verdict: Great for lower down payments, but higher insurance costs apply.
Your DTI ratio is how lenders gauge risk:
Example:
Front-end DTI: 24%
Back-end DTI: 31.2%
Method | Max Monthly Payment | Max Home Price | Down Payment Required | DTI Flexibility | Recommended For |
---|---|---|---|---|---|
Dave Ramsey | $1,666 | $250K | 20% ($50K) | Very Low | Budget-conscious buyers |
28/36 Rule | $2,333 | $350K | 20% ($70K) | Moderate | Traditional-minded buyers |
Conventional | $4,165 | $600K | 20% ($120K) | High | High earners with no debt |
FHA | $3,917 | $500K | 3.5% ($17.5K) | Very High | First-time or lower-credit buyers |
Just because you can borrow a certain amount doesn’t mean you should. Lenders offer a ceiling, not a target. Your personal comfort level, lifestyle, and future goals matter just as much.
If you want expert guidance and help calculating your exact numbers, connect with a mortgage professional who understands these nuances.
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