How Much Should I Spend on a House If I Make $100k? 🏡💰

 

 

Table of Contents

 

- Introduction 📖

- Determine Your Budget 💵

  - Calculate Your Income 💰

  - Factor In Expenses 💸

  - Set a Down Payment Goal 💡

- Consider the Mortgage 🔨

  - Interest Rates ⬆️⬇️

  - Loan Options 🏦

  - Payment Calculator 🧮

- Homebuying Costs 💲

  - Closing Costs 📝

  - Inspections and Appraisals 👓

  - Moving Expenses 🚚

- Finding the Right Home 🔍

  - Location 📍

  - Size and Features 🏠

  - Condition and Updates ⚒️

- Making a Financially Wise Decision 💡

- Conclusion ✅

- FAQs ❓❓

 

 Introduction 📖

 

Purchasing your first home is an exciting milestone that can lead to pride in ownership, financial security, and cherished memories over the years. However, homebuying also represents a major financial investment and long-term commitment. It's important to carefully consider your budget, expenses, and financial goals when deciding how much you can realistically spend on a house if your gross annual income is $100,000.

 

While getting pre-approved for a mortgage gives you a ballpark price range, sticking to a realistic budget that fits your lifestyle is the key to maintaining long-term financial health and comfort. This detailed article will walk you through all the essential steps for determining an ideal homebuying budget if you make $100k per year. We'll look closely at your income, expenses, ideal down payment amount, monthly mortgage payments, and additional housing costs. You'll also find tips for balancing "wants" versus "needs" when evaluating home features, condition, and location.

 

With some careful number crunching, budgeting discipline, and realistic expectations, you can feel confident that you are not overspending when you finally land your dream home. While buying a house is a big purchase, it should still leave room in your budget for other financial goals. Let's explore how to make homeownership a wise investment that enhances, rather than strains, your finances.

 

 Determine Your Budget 💵

 

The first essential step in deciding your homebuying budget is to take a detailed look at your current finances and calculate how much house you can realistically afford. Buying a home that stretches your budget to the max can jeopardize your financial stability. Instead, aim to purchase at a level that allows room for savings, retirement contributions, and other goals. Here are some key factors to consider when determining a comfortable housing budget based on a $100k annual salary:

 

 Calculate Your Income 💰

 

Start by looking at your gross annual income from your job. For this example, we'll use a $100k gross salary. Be conservative in your number and don't count on consistent overtime or bonuses. Run the numbers based on your guaranteed base salary. If your income fluctuates, use an average from the last several years, rather than just the highest earning year.

 

Next, tally up any additional income you receive aside from your primary job, such as:

 

- Income from a side gig or freelance work

- Child support or alimony payments 

- Rental property income

- Dividends and interest from investments

- Withdrawals from retirement accounts

- Social Security payments

 

Add up all of these streams to calculate your total gross annual income from all sources. This full income amount will be used to determine your debt-to-income ratio and homebuying budget capacity.

 

 Factor In Expenses 💸

 

The next step is to look at your monthly expenses and get a complete picture of where your income is going each month. Document all of these regular expenses:

 

- Housing payment - rent/mortgage/property tax

- Minimum debt payments (loans, credit cards, etc) 

- Insurance premiums - health, auto, renters

- Utilities - electricity, water, gas, phone, cable, internet

- Transportation costs - vehicle payment, insurance, gas 

- Groceries and dining out expenses

- Childcare and child support payments

- Alimony or spousal support

- Out of pocket medical expenses

- Retirement contributions

- Entertainment, hobbies, subscriptions

- Any other recurring expenses

 

Ideally, your total monthly debt payments (mortgage plus other debts like auto, student loans, credit cards) should not exceed 36% of your gross monthly income. This is your debt-to-income ratio. Lenders prefer this ratio to stay below 36% to approve borrowers.

 

Additionally, budget for future housing expenses beyond just the mortgage principal and interest. You will also need to pay property taxes, homeowners insurance, HOA fees (if applicable), and utilities like electricity, gas, water, sewer and trash. Also budget for future maintenance and repairs - about 1-3% of the home's value annually.

 

 Set a Down Payment Goal 💡

 

Another key budget factor is deciding how large of a down payment you want to make. Putting down at least 20% of the home's purchase price is ideal to avoid private mortgage insurance (PMI), which adds to your monthly payment.

 

On a $100k annual salary, a realistic goal would be to save $20,000 - $25,000 for a downpayment. This would allow you to purchase a home around $300k or less while putting 20% down and avoiding PMI. Even a 15% downpayment would keep your loan amount at $340k or under.

 

Start saving for your downpayment well in advance by setting aside a portion of each paycheck into a separate savings account. You may need to make some temporary lifestyle sacrifices like cutting back on vacations, dining out or other extras until you reach your down payment goal.

 

Allow plenty of time to accumulate downpayment funds - saving $200-$500 each month will get you there faster than waiting for a large windfall bonus or tax refund. However, any amount you can save now gets you closer to reaching 20% down on your future home.

 

 Consider the Mortgage 🔨

 

Beyond considering your own income, expenses, and downpayment funds, you also need to explore mortgage options and estimate monthly payments. Getting mortgage pre-approvals from multiple lenders gives you a look at payment amounts across loan types and rates. Here are some mortgage factors that influence affordability:

 

 Interest Rates ⬆️⬇️

 

Current interest rates have a large impact on your monthly mortgage payment. Even a small rate change of 0.5% can mean a difference of $100 or more per month. It's wise to explore both fixed-rate and adjustable-rate mortgages to find the best rate for your situation:

 

- Fixed-rate mortgages lock in the interest rate for the full loan term, which is typically 15 or 30 years. This gives you predictable payments that won't rise over time. However, fixed rates are often higher than adjustable rates.

 

- Adjustable-rate mortgages (ARMs) have interest rates that fluctuate over the loan term, usually adjusting yearly after an initial fixed period. ARMs often start with a lower rate but payments can go up over time.

 

As of October 2022, average 30-year fixed mortgage rates are around 5 - 6%. However, shop multiple lenders and negotiate to find the best possible rate based on your financial profile and credit score. Secure rate locks to protect against rising rates between loan application and closing. Consider points purchases to buy down the rate further.

 

 Loan Options 🏦

 

Beyond just interest rates, look at the underlying loan types and programs available through different lenders:

 

- Conventional loans have more flexible credit requirements than government programs. However, you may need private mortgage insurance.

 

- FHA loans only require 3.5% down but have stricter credit score requirements and upfront mortgage insurance premiums.

 

- VA loans offer 100% financing with no downpayment or PMI for qualified veterans and active duty buyers.

 

- USDA loans provide 100% financing for properties in designated rural areas. Income and property restrictions apply.

 

Compare loan estimate disclosures across multiple lenders. Look beyond just rates and fees. Consider differences in requirements, mortgage insurance, eligible properties, and more to find the optimal loan program for your scenario.

 

 Payment Calculator 🧮

 

Once you have current rate quotes from lenders, use an online mortgage calculator to estimate your principal, interest, taxes and insurance. For example, on a $300k home loan at 5% interest with 20% down and 1.25% annual property tax:

 

- Principal & Interest = $1,265

- Taxes (est) = $312

- Insurance (est) = $125

- Total Monthly Payment = $1,702

 

Now you have an estimate fitting your $100k income, 20% down, and current rate situation. Evaluate if this fits your budget after other debt payments. Now tweak the calculator to consider different home prices, down payments or interest rates to find your ceiling.

 

 Homebuying Costs 💲

 

In addition to the downpayment and monthly mortgage payments, buying a home involves many other upfront and ongoing expenses. Make sure to factor these into your overall budget:

 

 Closing Costs 📝

 

When you purchase a home, expect to pay closing costs amounting to 2-5% of the total loan amount. These fees pay for origination, processing, underwriting, appraisal, title searches, insurance, taxes, recording fees and more. Closing costs can total $6,000-$10,000 or more.

 

Save up to cover these fees in advance rather than relying on seller credits or rolling them into your loan. Shop lenders for the best rates and lowest fees to minimize closing costs. Keep an eye out for no-closing cost mortgages as well.

 

 Inspections and Appraisals 👓

 

Before you close, budget $500-$1,000 for a professional home inspection to evaluate the property's structure, systems and components. The inspector provides an objective analysis of condition and identifies any repairs needed.

 

Your lender also requires an independent appraisal (around $350-$500) to confirm the home is worth at least the amount you offered. If the appraisal value comes in lower, you may need to pay the difference in cash or renegotiate the purchase price with the sellers.

 

 Moving Expenses 🚚

 

Don't overlook the wide range of expenses involved in actually moving your belongings into your new home. Depending on whether you hire professional movers or rent and drive a truck yourself, budget several hundred to a few thousand dollars for:

 

- Renting trucks/vans or moving container pods

- Professional movers and packing services

- Extra insurance coverage for valuables

- Packing supplies - boxes, tape, padding, etc

- Changing utilities and services over to new address

- Any repairs or paint touch-ups after moving furniture

- Storage fees if transitioning between homes

 

Also budget for any time off needed from work forpacking and moving days. And if your move involves changing states, extra expenses add up quickly.

 

 Finding the Right Home 🔍

 

Armed with your affordable price range, you can now start shopping for a home that fits both your budget and needs. Rather than fixating on finding your ultimate “dream home,” seek the best possible property within your realistic budget. Here are some ways to balance trade-offs:

 

 Location 📍

 

One of the biggest budget factors is deciding where you want to live. Desirable locations often come with higher home prices. Make location a priority in your budget by:

 

- Stretching your price range for your ideal neighborhood 

- Compromising on size, age or amenities to get the best location

- Considering up and coming areas with renovation potential

- Choosing a smaller starter home in the target community

- Commuting from a more affordable suburb nearby

 

Drive around target neighborhoods and research home values to balance commute time, amenities, school districts and other priorities against housing costs in different areas.

 

 Size and Features 🏠

 

Next, determine what size house and specific features you need versus simply desire. Prioritize necessities before splurging on luxury add-ons:

 

- Minimum/maximum square footage

- Number of bedrooms and bathrooms

- Garage/outdoor space

- Kitchen and laundry amenities

- Storage and closet space

- Workspace or playroom space

 

Don't overbuy based on future needs. It’s easier to transition up to a larger home than downsize later. Compromise and scale back on extra large media rooms, fancy kitchens or spa bathrooms to stay within your budget. Focus on necessities for livability and family needs.

 

 Condition and Updates ⚒️

 

Homes needing renovation work or upgrades often cost less upfront. But determine whether it fits your timeline and budget:

 

- Estimate update/repair costs upfront

- Weigh benefits of lower price versus extra work

- Consider a minor “cosmetic” facelift home

- Or choose a fully updated “move in ready” home

 

Plan ahead for future renovations like finishing a basement or adding a deck. Seek homes with layouts that support upcoming DIY projects or phased improvements over time.

 

 Making a Financially Wise Decision 💡

 

When you finally find a home in your sweet spot for price, size, condition and location, it's tempting to stretch your budget to make it work. But financial experts strongly recommend:

 

- Keeping total monthly debt under 36% of your gross monthly income

- Putting at least 20% down to avoid costly PMI fees

- Prioritizing needs and avoiding expensive impulse upgrades

- Evaluating affordable utilities, property tax rates, and maintenance costs

- Following pre-approval guidelines from your lender

 

While it’s important not to overspend, don’t be so conservative that you miss out on a great home either. If a property checks all of your boxes, consider compromising in one area, like putting 10-15% down instead of a full 20% while keeping your total debt ratio reasonable.

 

Set limits in advance on how much you can spend per month and how far beyond your ideal budget you’re willing to stretch. This helps objectively balance trade-offs to land the right home for your needs and financial situation.

 

 Conclusion ✅

 

Deciding how much to spend on a house if you make $100k annually requires careful consideration of your full financial picture. While lenders may pre-approve you for up to $400k or more, sticking to a comfortable budget that fits your lifestyle is wise. Based on the factors in this article, we recommend:

 

- Spending no more than 2-3 times your $100k income

- Saving at least 10-20% for a downpayment

- Keeping total monthly debts under 36% of gross income

- Understanding all costs beyond just the purchase price

- Balancing location, features and condition trade-offs 

 

By following these criteria, you can likely afford a home purchase price of around $300k while putting down 20% and keeping your total debts reasonable on a $100k salary. Adjust figures for your specific income, existing obligations, and savings ability when setting your budget ceiling.

 

While buying a house is a big commitment, it should still allow room in your budget for flexibility, savings and other financial priorities. With discipline and realistic expectations, you can confidently land in a home that's perfect for this stage of your life without overextending your finances. Enjoy the thrill of homeownership knowing you made a wise investment in your future!

 

 FAQs ❓❓

 

How do I determine my true maximum home buying budget?

 

Look at gross income, current debts, typical monthly expenses, down payment savings, and costs beyond the purchase price. Maximum budgets from lenders often exceed 33-36% debt-to-income ratio. Set limits on monthly housing costs at 28% of gross income to allow for other savings and spending.

 

What percentage of income going towards housing is ideal vs too much?

 

Ideally keep total monthly housing costs including taxes, insurance and mortgage payments under 28% of gross monthly income, and total debt under 36%. In expensive markets this creeps higher, but try to keep housing around 30% of income at most to allow room for other goals.

 

How much cash savings should I have on hand for homebuying costs?

 

Beyond the downpayment, budget 2-5% of the purchase price for closing costs and prepaid items. Have at least 6 months living expenses for an emergency fund. If furnishing a new home, budget several thousand for furniture and household items.

 

What are risks or hidden costs of buying “too much” house?

 

Buying at the top of your limit leaves little wiggle room. Cost overruns, job loss or rate hikes could mean unaffordable payments. Likewise, expensive utilities, repairs or maintenance may strain your budget. Minimal savings exposes you to high debt if faced with an emergency.

 

Which costs most often exceed buyers’ budgets?

 

Closing costs, repairs, and maintenance are most likely to go over budget. Aim high on savings goals for these and allow room for unexpected overages. Also budget for new furniture, window treatments, appliances and decorating upgrades that add up quickly.

 

How do I decide between buying now or saving longer to buy all cash?

 

Buying all cash eliminates a mortgage payment but delays homeownership. In today’s low rate environment, financing often makes sense if you lock in under 5-6% interest and avoid PMI with 20% down. But run the numbers based on current rates, your savings timeline, and opportunity cost of renting longer.

 

What downpayment percentage is best if I want to minimize monthly costs?

 

Putting down more upfront directly reduces your mortgage amount borrowed, lowering payments. But paying excessive points solely to lower payments may not make sense if rates are reasonable. Focus first on hitting at least 20% down to avoid PMI before paying points to buy down interest rates.

 

Should I buy a fixer upper home for the potential appreciation upside?

 

Taking on a major home renovation project delays your ability to settle in and requires living through the construction dust and noise or paying for temporary housing. Consider your timeline, willingness to manage contractors, and repair budget compared to the potential savings. Homes requiring extensive structural repairs or new roofs could exceed your savings ability. Prioritize turnkey homes within budget unless you have cash reserves for major updates.

 

What are early signs I may be overspending on a home beyond my means?

 

Warning signs of overspending include:

 

- Total monthly housing costs exceeding 28% of your gross monthly income

- Relying on two incomes to carry the payments and expenses

- Not being able to save separately for retirement and other goals

- Not having at least a 6 month emergency fund

- Having to finance 100% of the purchase price

- Paying multiple points and fees to afford the monthly payment

 

If you notice these red flags, it may be wise to consider more affordable homes that fit comfortably within your budget.

 

How do I avoid emotional buying and stay grounded in my budget?

 

Bring someone objective with you when viewing homes to point out negatives and overspending. Avoid visiting homes above your budget so you aren’t tempted. Have pre-set limits on monthly costs and over-budget amounts you’re willing to consider so decisions stay rational. Remind yourself of trade-offs like less retirement savings or travel flexibility if you overspend.

 

What hidden fees should I watch out for when budgeting?

 

Look for junk fees like document preparation charges for standard forms. Estimate high for title insurance and recording fees. Some lenders charge appraisal coding and underwriting fees. Get quotes for homeowners’ insurance early - premiums vary greatly. Avoid funding via escrow accounts. Inspect final CDs for unusual charges.

 

How do I budget for maintenance and repairs on a new home?

 

While a home inspection helps uncover existing defects, ongoing maintenance and repairs are part of homeownership. Budget 1-3% of the home’s value annually for these costs. Avoid dipping into an emergency fund by contributing monthly to a dedicated home repair account. Reprioritize other spending if needed to build this buffer.