At today’s high interest rates, you would need household income of $135,000 or higher to qualify for a mortgage of $450k. This is assuming that your other debt commitments are less than $950 per month and that your monthly housing costs are $400.
These are just indicative values and your actual results will vary based on individual circumstances, and of course, on the all-important mortgage rates.
Let’s take a deeper look.
What is the monthly mortgage payment on a $450k mortgage?
At today’s high interest rates, on a $450,000 mortgage, your monthly mortgage payments could be anywhere from $2,700 to $2,900. If you pay bi-weekly, this would work out to to $1,250 to $1,350 per payment.
I got these values using our mortgage payment calculator.
How Much House with a $450k Mortgage?
If we’re sticking with the technicalities here, a $450k mortgage can be taken out on a home where the value comfortably exceeds that amount. However under typical circumstances, down payments on most homes are in the 3.5% to 20% range. If we work back those numbers, then the value of home you would be able to buy with a $450k mortgage ranges between $466,000 to $562,000.
| Down Payment (%) | Down Payment ($) | Home Price |
|---|---|---|
| 3.5% | $16,000 | $466,000 |
| 5% | $23,650 | $473,000 |
| 10% | $50,000 | $500,000 |
| 15% | $105,800 | $529,000 |
| 20% | $112,500 | $562,500 |
How To Determine The Income Needed for a $450k Mortgage
As you may know, there are many factors that go in to determining what level of mortgage you can qualify for. Most factors are specific to the borrower(s) that are applying for the loan and the overriding factor common to all is the mortgage rate, which is ultimately determine by the rate set by the US Federal Reserve.
The main factors that determine on a few factors:
- Your down payment
- The amortization period (number of years to pay off the entire mortgage amount)
- The interest rate set by the mortgage lender
- How much debt you pay elsewhere each month
- Your credit risk & credit score
- Your debt-to-income ratios and the lender’s limits
There can of course be numerous combinations of the above, so let’s play with some of these factors in our house affordability calculator to try out some scenarios:
- Front-End DTI: 28%. This is the typical limit imposed by most lenders, however for a price (i.e. higher mortgage rate) you can find lenders willing to go higher. You may even be able to get up to 36%!
- Back-End DTI: 36%. This is a typical figure, however you can of course go higher for a cost
- Minimum Debt & Mandatory Payments: Assuming a total of $500 in monthly debt payments for credit cards, student debt, and car loans.
- Monthly mortgage insurance: $150
- Monthly Housing Expenses: Assuming $250
- Loan term: 30 year amortization period.
- Down Payment: For this purpose, we use $0 as we want to see what level of income is needed to get a full $450k mortgage. We’re not interested in the house value just yet. See more on that below.
Since the only factor that we don’t control is the mortgage rate, let’s see what level of income is needed to get a $450k mortgage with the above assumptions for various rates.
| Mortgage Rate | Income Needed |
|---|---|
| 7.0% | $146,000 |
| 6.5% | $140,000 |
| 6.0% | $133,000 |
| 5.5% | $127,000 |
| 5.0% | $121,500 |
| 4.5% | $115,000 |
| 4.0% | $110,000 |
| 3.5% | $104,000 |
The numbers make it clear that with the current mortgage rates, you need an income of over $100,000 annually to even begin to qualify for a $450,000 mortgage.
As you can see, mortgage rates really dictate what you can afford. A change in just 50 bps in the interest rate makes a big difference! It’s therefore worth haggling over even small changes in rate.
The image below shows what your monthly payments look like in the context of the front-end and back-end DTI limits for a $450k mortgage, with a $127,000 income, and a 5.5% mortgage rate. The other assumptions are as stated above.
Impact of Other Debt on Income Needed
In the example above, we used a Front-End DTI of 28% and Back-End DTI of 36%. The difference between the two dictates what room you have to accommodate any other debts. The table below shows the maximum other debt you can have before it starts to crimp down on how much of a mortgage you can have.
| Income | Back-End DTI @ 33% | Back-End DTI @ 36% |
|---|---|---|
| $135,000 | $563 | $900 |
| $127,000 | $529 | $847 |
| $121,000 | $504 | $807 |
| $115,500 | $481 | $770 |
| $111,000 | $463 | $740 |
| $106,000 | $442 | $707 |
| $101,000 | $421 | $673 |
| $96,500 | $402 | $643 |
I do not recommend trying to max out the ratios here as it severely limits your ability to deal with any emergencies – whether they be medical or other things like loss of income due to layoffs.
Before You Go…
Getting a mortgage these days isn’t as easy as it used to be. Higher rates and stricter lending criteria by banks makes it tough to get a mortgage.
Take a look at our article talking about how tough it’s become for those on a lower salary to qualify for a mortgage. Someone earning $60k would have been able to qualify for a mortgage on a $300k property earlier, but now it’s just impossible!
If you face a similar situation, my best recommendation would be to save up for a larger down payment and work towards increasing your income. If your credit score needs improvement, it pays to get started on that ASAP. You can use a service like Credit Karma or Experian to pull your FICO score.
None of these can be achieved overnight, but with time and as interest rates hopefully come down again a little, the mortgage equation might just click for you!
by Andrew Garcia
Andrew, an alumnus of South Florida State College, loves finance, fintech, and coding. When he’s not crunching numbers at the bank, he’s passionately writing about personal finance and building calculators for PFF. See more.
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