If I make $140,000 a year, how much house can I afford?

Whether you’re bringing in $140,000 on your own or that’s your combined household income, you probably feel pretty confident about your homebuying journey. You’re making about double the national median household income, which is $70,784 per the latest Census data, so getting approved for a mortgage and finding homes that fit your budget shouldn’t be too tricky.

Be smart as you shop, though. Earning more makes it easy to spend more — experts call this lifestyle inflation — and if you’re not careful, a hefty monthly mortgage payment could mean your spending outpaces your monthly earnings. Let’s crunch the numbers on how much house you can afford with a $140K salary.

The 28/36 rule

Many financial experts use a fairly simple set of calculations called the 28/36 rule to assess affordability. This guideline breaks down how much of your income should go toward your mortgage and other debts: Per the rule, no more than 28 percent of your gross income should go to your housing payments each month. And no more than 36 percent should be allocated to your total debt, including housing — such as car payments, student loans and credit card bills.

Let’s apply the 28/36 rule to your $140K salary to see how much you should be spending on housing costs:

How much house can you afford?

But wait, you might be thinking. I want to know a purchase price, not just how much I should spend on my mortgage payments. Bankrate’s mortgage calculator can help: It shows that if you were to buy a $500,000 home, with a 20 percent down payment and a 30-year loan at 7.5 percent interest, your monthly principal and interest payments would be $2,796. That leaves you a few hundred dollars to cover home insurance premiums and property taxes, which will vary widely depending on your location, before you hit that $3,267 cap.

So hypothetically, you can afford a $500K home. Don’t forget, though, that this does not include your upfront expenditures: a 20 percent down payment on a home of that price is a significant $100,000, plus closing costs.

And these aren’t the only factors to consider before you start house shopping. Here are some other metrics mortgage lenders look at to make sure you’re not overextending yourself:

• Credit score: The higher your credit score is, the better the interest rate you can get — which means you’ll pay less in interest. This translates to big savings over the life of the loan, so it’s worth getting your score in the best shape possible before your house-hunt begins.
• Debt-to-income ratio: Often called DTI, this metric is similar to the 28/36 rule in that it measures how your debt obligations stack up against your income. If you stay below 36, you should be in good shape, although some lenders allow for a higher DTI.
• Down payment: You might have heard that you need to put 20 percent down, but that’s not necessarily true. Some loans require as little as 3 percent for a down payment. However, paying less upfront means borrowing more, and thus bigger monthly payments. And putting down the full 20 percent lets you avoid paying private mortgage insurance on top of your mortgage payment. With your $140K salary, shelling out a bigger down payment just makes sense.
• Desired location: In most parts of the country, a $500,000 housing budget will probably get you a spacious single-family home. But in particularly pricey markets, like New York City or the San Francisco Bay Area, it might buy a lot less. Consider general cost of living prices, too, from groceries to transportation to entertainment. Make sure you can afford not just the house, but the lifestyle you want to live.

Home financing options

Even if you’re comfortable spending half a million dollars on a home, you probably don’t have that kind of cash just lying around. That’s where home financing comes in.

Get preapproved for a mortgage

Before you even start house-hunting, it’s smart to get preapproved for a mortgage. Preapproval isn’t final approval, but it tells you the size of the loan you’re likely to get, which helps ensure you don’t waste time looking at homes that don’t fit within your budget. It can also be crucial in competitive markets, where there may be more than one offer on a home — your preapproval lets sellers know you are a serious, qualified buyer.

Different types of loans

There are many different types of mortgages that can help you make that half-million home yours. Most have specific credit-score requirements, and you may not be eligible for some due to your high salary. If you are a military service member or veteran, it’s well worth looking into VA loans, and FHA loans are often popular with first-time buyers and borrowers with poor credit. But with a $140K salary, you’ll probably be looking at a conventional loan. A knowledgeable loan officer or mortgage broker will be able to explore your options with you.

First-time homebuyer programs

Are you transitioning from renter to homeowner for the first time? If so, you might be able to take advantage of first-time homebuyer programs, which can range from grants to low-interest or forgivable loans offering closing cost and down payment assistance. However, many such programs come with a maximum salary cap, so your $140,000 income might make you ineligible.

Getting started

When you’re ready to jump into the homebuying market, working with an experienced real estate pro in your desired area is your best first step. Local agents know their markets well and will be able to show you home options that match your needs and your budget. Ask for recommendations from friends and family, look at yard signs in the neighborhoods you like and research online to find some good candidates. Then, interview a few people before you choose the right one for you.