Congratulations on reaching the six-figure mark and considering the leap into homeownership. Say goodbye to landlords, rent hikes, and noisy neighbors in your Portland, OR apartment. Before you start browsing homes in Portland, OR after leaving your rental house in Beaverton, OR, it’s essential to determine how much house you can afford with a $100k salary.
Using Redfin’s mortgage calculator, and assuming a $100k salary, zero current debts, 20% down payment, and a 36% debt-to-income ratio, you could consider homes valued at $425,000 or below. However, the affordability of a house on a $100k salary depends on various factors explored in this Redfin article.
Factors affecting affordability:
What’s your credit score?
How large of a down payment can you afford?
What’s your debt-to-income ratio?
What are the current interest rates?
Where do you want to live?
How much work does the house need?
Know what you can afford
What’s your credit score?
Your credit score plays a significant role in determining what you can afford when financing a new home. Higher credit scores can lead to better loan options with lower interest rates, potentially allowing you to consider houses with higher prices.
- Exceptional (800+): Best rates and lender options
- Very good (740-799): Quality rates and lenders
- Good (670-739): Favorable rates and terms
- Fair (580-669): Increased rates
- Poor (579 or lower): Higher rates, harder to secure a mortgage
Improving your credit score is possible by timely loan payments, maintaining a safe credit utilization ratio, and reducing outstanding debts.
In summary: A higher credit score can open doors to better loan options with lower interest rates, expanding your home affordability.
How large of a down payment can you afford?
The size of your down payment directly impacts your home affordability on a $100k salary. Saving for a 20% down payment can help you avoid additional costs like private mortgage insurance (PMI) and reduce your monthly mortgage payments.
Aiming for a 20% down payment while ensuring emergency fund savings can lead to more manageable mortgage payments.
The bottom line: Strive for a 20% down payment to lower your mortgage costs and ensure financial stability.
What’s your debt-to-income ratio?
Debt-to-income ratio is crucial in determining your ability to repay loans. Lenders consider this ratio when assessing mortgage rates. Keeping your DTI below 36% is generally preferred by lenders to ensure manageable debt repayment.
Following the 28/36 rule, which limits housing expenses to 28% of gross income and total debt service to 36%, can increase your chances of securing a favorable mortgage.
In summary: Aim for a DTI below 36% to maintain financial stability and increase mortgage approval chances.
What are the current interest rates?
Fluctuations in interest rates can significantly impact your mortgage costs. Waiting for lower rates is unpredictable, so it’s advisable to buy when you can afford it and refinance if rates drop later.
Key takeaways: Stay informed about interest rates, but focus on affordability rather than timing the market.
Where are you looking to live?
Location is key in real estate. Your $100k salary may afford you different housing options based on the area. Consider your work location and potential for remote work when deciding where to settle.
Choosing a slightly rural area can stretch your budget further, allowing for a larger house within your budget.
Main points: Explore different locations to maximize your $100k salary’s housing potential.
How much work does the house need?
Consider the potential savings of buying a fixer-upper if you have the skills and time to invest in renovations. Ensure to inspect the property thoroughly before purchase to assess the extent of repairs needed.
In summary: Investing sweat equity in a home can increase your purchasing power on a $100k salary.
The bottom line: know what you can afford
With a better understanding of the factors influencing your home affordability on a $100k salary, use tools like Redfin’s mortgage calculator to determine a suitable DTI and explore homes within your budget in your desired location.