When you live on a larger subway like Seattle, Washington, a $50,000 salary won’t help you go very far when it comes to property owned, but that doesn’t mean you can’t own it in a more affordable area in the country. It’s understandable that we’ll escape the fear of increasing rent for our San Francisco, California apartments and start building equity in our homes. The first step on this journey is to figure out how much you can afford on a salary of $50,000.
Using Redfin’s mortgage calculator, you’ll be considering a home that’s under $205,000 with a current salary of zero debt, 20% down payment and 36% debt revenue. This may not seem like that much, but there are many ways to help you increase the amount of monthly mortgage payments you can afford. Find out more in this Redfin article.
Factors that affect what you can afford:
What is your credit score?
Can I afford most of the down payment?
What is your debt-to-income ratio?
What is the current interest rate?
Where are you trying to live?
How much work do you need at home?
Conclusion: I know what you can afford
What is your credit score?
If you are paying cash to your home, you can skip this section – the seller is only care that you can cover the full amount. But like most Americans, if you’re funding your purchase, your credit score will have a big impact on what you can afford.
Exception (800+): You are eligible for the highest rates available and you can choose a lender.
Very good (740-799): These borrowers also tend to qualify for high quality interest rates
Good (670-739): This is where there is a slight rise in interest rates, but this range is considered favorable.
FAIR (580-669): Interest rates in this range may begin to increase further.
Poor (below 579): If you are in this range, you can pay a lot of interest and secure a mortgage.
Don’t worry if your credit score is heading towards the bottom edge of this range. There’s still so much you can do to improve it and save thousands of people with a mortgage. If you want to improve your credit score, make sure you pay your loan on time, don’t get too close to your credit limits, and don’t reduce your outstanding debt.
In short, a higher credit score will allow you to qualify for a better loan at a lower interest rate and you can afford a home with a higher asking price.
Can I afford most of the down payment?
The size of the down payment will have a big impact on homes that can afford a $50,000 salary. If we can cut 20%, we will avoid private mortgage insurance (PMI), which usually costs 0.5% to 1.5% per year on the loan. PMI protects lenders, but you can save money by hitting that 20% threshold.
A larger down payment usually means lowering your monthly mortgage bill, so it’s wise to contribute as much as you can without eliminating all your savings.
Bottom line: If you can afford it and still have enough savings to cover the emergency costs, aim to pay a 20% down payment. The larger the down payment, the smaller the monthly mortgage payments.
What is your debt-to-income ratio?
The Debt Income (DTI) ratio is a way to compare monthly debt payments with monthly total income. Lenders use this ratio as a way to determine their ability to pay off their loans. High DTIs can improve mortgage rates, while low DTIs will increase your ability to manage your debt, making it even more advantageous for lenders. To calculate the DTI, follow the formula below:
dti = (Monthly debt payments/Monthly total income) x 100
Let’s say you spend $500 a month on your credit card minimum, car payments, and student loans. The annual total income is $50,000, and the monthly total income is $4,166. So your DTI would look like this:
dti = ($500/$4,166) *100 = 12%
This means that 12% of your income will pay back your monthly regular debt payments. While most lenders prefer DTIs below 36%, many lenders offer exceptions of up to 45% or 50% of FHA loans.
Use the 28/36 rule
You can get mortgage approval, but it is generally recommended to follow the 28/36 rule. The 28/36 rule states that up to 28% of your monthly total income must be spent on total housing expenses (mortgage payments, property taxes, homeowner insurance premiums, and homeowner association fees).
Following the rules of 28/36, it may increase the likelihood of securing a mortgage at a favorable rate without risking defaulting on debt. When trying to decide how much you can afford for $50,000, it’s important to keep debt in mind. Lenders are careful and may affect the types of properties that can be considered in the price range.
In summary, we aim for a DTI of less than 36%. This means that 36% of your monthly total revenue is spent on paying your debt. Ideally, you’ll only need 28% of the total amount you spend on total housing expenses, but this can be promoted if you’re willing to budget a little more.
What is the current interest rate?
Even a small shift in interest rates can cost or save you thousands of people over the life of your loan. Higher prices can reduce the amount of homes you can afford, while lower prices may allow you to extend your budget a little more.
It’s fascinating to continue asking, “Is this a good time to buy?” However, the market rarely pays off. The best time to buy is when you’re financially ready. If your fees drop later and your credits are strong, you can always refinance.
Important takeaway: Knowing current interest rates is helpful, but be careful not to paralyze yourself waiting for a decline that may never come. The best time to buy a home is when you can afford it.
Where are you trying to live?
Location, location, location. Depending on where you want to live, your $50K will get a small 3 bedroom home outside Oklahoma City and a condo outside Portland, Oklahoma. Of course, this doesn’t take into account whether your income is affected by the movement. Using remote jobs can be more flexible if you are considering moving to another state, but your income can change.
However, you don’t need to move to another state to stretch the 50ka a little more. Sometimes living a few extra minutes from the city can provide an opportunity to extend into a lovely home with more space and ease of walking. Location, location, location – there’s a reason real estate agents say so. It is truly an important element of where you chose to live.
Key Points: If you’re willing to live in the more rural areas, you might be able to buy a little more home for your $50,000 salary.
How much work do you need at home?
It depends on how affordable homes are available on a $50,000 salary. If you don’t mind DIY and it’s convenient, you can further increase your budget by purchasing Fixer-Upper. Please be careful. There is a big difference between cosmetic updates and major structural issues. Always have a professional home inspector evaluate your property before closing the transaction.
In short, if you have the skills and time to sweat, you can get more homes for $50,000.
Conclusion: I know what you can afford
With all the ideas you’ll need to consider deciding on a home you can afford with a $50,000 salary, you’re ready to tour the house and create an offer. To understand exactly how much you can afford, play with Redfin’s mortgage calculator, calculate the DTI that works for you, and start looking at homes in the price range you want to settle down.
