Making $160,000 a year could put you on track to purchase a home for around $480,000. But how much you earn is just one factor lenders look at when determining how much you can borrow for a home mortgage loan. Let’s take a closer look at calculating home affordability and other key considerations to answer your question, “If I make $160,000 a year, how much house can I afford?”
What Kind of House Can I Afford With $160K a Year?
The type of house you can afford is determined in part by location. Your money is likely to go further in a rural area than an urban center, for instance. It’s important to consider the cost of living by state, local property taxes, and insurance requirements when browsing options. Whether you’re looking for a condo, townhouse, or a single-family home will affect how much house you get as well.
What kind of home mortgage loan you can secure will also depend on your personal financial situation — not just income alone.
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Understanding Debt-to-Income Ratio
Lenders consider your existing debt to determine your ability to pay back a home loan. Typically, this is performed by calculating a borrower’s debt-to-income (DTI) ratio, or the percentage of gross income that goes toward debt payments.
To calculate your DTI ratio, simply divide all your monthly debts (student loans, auto loans, etc.) by your gross monthly income. Generally, lenders view a DTI ratio of 36% or less as favorable. However, buyers may qualify for certain loans with a higher DTI.
If you make $160,000 a year, your gross monthly income is $13,333. Thus, you’ll need to keep monthly debt payments below $4,800 to maintain a DTI ratio of 36% or less.
Lenders often calculate DTI using the 28/36 rule, which recommends that borrowers limit housing costs to 28% of gross monthly income and all debts to 36%. On a $160,000 salary, the 28/36 rule comes out to $3,733 for housing costs and $4,800 for total monthly debt payments.
💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.
How to Factor in Your Down Payment
The lender and loan type will determine how much you need to put toward a down payment. But putting more money down upfront can expand your homebuying budget. A larger down payment also reduces the amount you need to borrow. This translates to lower monthly payments and less interest paid over the life of the loan.
When figuring out how much you can afford for a down payment, it’s important to reserve funds for closing costs, plus any necessary home repairs.
Recommended: How to Lower Down Payment Requirements in 2024
Factors That Affect Home Affordability
There are multiple factors besides income and down payment amount that affect home affordability. When assessing your ability to repay a mortgage, lenders will look at your credit score alongside your DTI ratio. Generally, higher credit scores translate to a lower interest rate, since there’s less risk to the lender. The minimum credit score varies between the different types of mortgage loans.
Mortgage interest rates are only determined in part by a borrower’s credit history. Economic conditions impact prevailing mortgage rates across the housing market. For 2024, the National Association of Realtors® estimates that mortgage interest rates will average 6.3%.
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How to Afford More House With Down Payment Assistance
Saving up money for a down payment can be a barrier to homeownership. Buyers struggling to make a down payment can explore assistance programs to make home buying a reality. Down payment assistance comes in several forms, including grants, low-interest loans, and forgivable loans. Down payment assistance programs are offered by the federal government, state and local government, and nonprofit organizations.
Note that assistance typically comes with eligibility and property requirements. Often, assistance is reserved for low-to-moderate income buyers or first-time homebuyers. To be eligible, properties typically must be primary residences, and buyers may need to occupy the home for a set period of time.
Home Affordability Examples
Here are some home affordability examples for borrowers with different DTI ratios and down payments.
According to the 28/36 rule, a borrower earning $160,000 a year can afford a maximum monthly mortgage payment of up to $3,733 and total monthly debt payments of up to $4,800. Using this guideline, if a borrower’s monthly debt is $800 and they have set aside $30,000 for a down payment, a home priced around $483,000 could be in the budget (assuming 7% interest and average property taxes).
Some homebuyers may prefer the flexibility of the 35/45 rule, which would recommend a maximum of $4,667 towards housing costs and $6,000 to pay for all monthly debt. If a lender is flexible as well, the home budget on a $160,000 salary in this scenario (assuming debt and down payment remain constant) would be $589,000.
💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).
How to Calculate How Much House You Can Afford
To answer, “I make $160,000 a year, how much house can I afford?”, you’ll need to gather some information to crunch the numbers. Namely, you’ll need to tally up your total debt and available savings for a down payment. You’ll also need to estimate your interest rate, as a slight change in interest rate can have a significant impact on monthly payment.
Rather than doing the math yourself with the 28/36 or 35/45 rules, using a home affordability calculator makes it easy to see how much house you can afford in different scenarios.
How Your Monthly Payment Affects Your Price Range
Borrowers repay their mortgage via monthly payments for a fixed term — usually 15 or 30 years. The monthly payment amount is used to calculate your DTI ratio, and ultimately, how much house you can afford.
Mortgage payments consist of four components: principal, interest, taxes, and insurance. The loan principal (the amount you borrow) and the interest paid on the loan can be estimated with a mortgage calculator.
Meanwhile, the property taxes and insurance costs can range considerably between homes based on their location and assessed value. For instance, buying a home in a flood zone may require flood insurance.
If you put less than 20% down on a house, you’ll need to pay private mortgage insurance (PMI), which increases your monthly payment. If you want to see how different home prices, down payments, and other variables affect your mortgage, try using a mortgage calculator.
Types of Home Loans Available to $160K Households
Buyers making $160,000 a year have several home loan options to choose from. The requirements for credit score, down payment, and DTI ratio vary by loan type. Here are some to consider:
• Conventional loans The most common loan type, these loans usually require a 620 credit score and may offer down payments as low as 3%.
• FHA loans Backed by the Federal Housing Administration, they offer flexible borrower requirements, including a down payment of 3.5% with a minimum credit score of 580.
• USDA loans Borrowers in United States Department of Agriculture-designated rural areas can get a home loan with no down payment required if they meet income eligibility.
• VA loans Active-duty service members, veterans, reservists, and surviving spouses can get a low-interest loan from the U.S. Department of Veterans Affairs with no down payment required.
To learn more about mortgage options and the homebuying process, check out a home loan help center.
The Takeaway
If you earn $160,000 a year, how much house you can afford depends on your personal financial situation and where you’re looking to buy. Besides your income, you’ll need to know your estimated down payment and total debt to calculate home affordability. Once you have a good sense of your budget, it’s time to start shopping for a house — and a home loan.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
Is $160K a good salary for a single person?
A $160,000 salary for a single person is well over double the national average wage in 2022 of $63,795.
What is a comfortable income for a single person?
A comfortable income for a single person should exceed the local cost of living to allow sufficient budget for savings and discretionary spending.
What is a liveable wage in 2024?
For Americans in most states, a livable wage is between $15 and $20 an hour. However, the cost of living can vary considerably by location, and in cities in California, New Jersey, New York, and Virginia, a livable wage is considerably higher.
What salary is considered rich for a single person?
A single person with a salary over $652,657 would be considered in the top 1% of earners in the U.S.
Photo credit: iStock/Jacob Wackerhausen
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