Yes, you could potentially afford a house worth $500k on a salary of $100k a year. However, it’s crucial to calculate your buying power and set a budget based on your financial situation. Here are some factors to consider:
Monthly mortgage payment: According to the 28% rule, your monthly mortgage payment should not exceed 28% of your gross monthly income. In this case, your gross monthly income is $8,333. Therefore, your monthly mortgage payment should be around $2,333 or less.
Down payment: Ideally, you should put down 20% of the home price to avoid paying private mortgage insurance (PMI). For a $500k house, that would be $100k. However, you can put down as little as 5% ($25k) or 10% ($50k) if that’s what you can afford.
Closing costs: You also need to factor in closing costs, which typically range from 2-5% of the home price. For a $500k house, that could be $10k to $25k.
Debt-to-income ratio: Lenders also look at your debt-to-income ratio (DTI), which is your monthly debt payments divided by your gross monthly income. Generally, lenders prefer a DTI of 36% or less. So, if you have other debts like car loans or credit card debt, that could affect your ability to qualify for a mortgage.
It’s essential to work with a lender to get pre-approved for a mortgage and determine the maximum home price you can afford based on your income, credit score, and other financial factors. Keep in mind that homeownership comes with additional expenses like property taxes, homeowner’s insurance, and maintenance costs. So, be sure to budget accordingly and avoid overextending yourself financially.