Can I Buy a $300K House on $60K Salary?

With the high current mortgage rates, the only way to qualify for a $300k house on a $60k income is if you have a 20% down payment ($60,000), your other debts are very small, and your lender is willing to stretch the debt to income ratios.

However once mortgage rates drop below 5.5%, you will be able to qualify with fewer restrictions and conditions.

Owning a home is a long-cherished dream for many and in this article, we’ll examine various aspects and financial tactics that could make this dream come true.

With today’s high mortgage rates, you could qualify for a home value as high $240,000 if you have a 20% down payment, don’t have any other debts and have a good credit score. If your lender is willing to stretch out the DTI ratios, you could qualify for up to $265,000.

You of course would need to factor in lawyer fees, closing costs, inspection costs, etc. when buying a home. If you are unable to pay for those out-of-pocket, your total qualified value would go down commensurately.

Let’s look at two different scenarios in further detail below.

In both cases, we’re using the following values:

• Salary: $60,000
• Mortgage Rate: 6.5%
• Amortization Period: 30%
• Front End Debt to Income Ratio: 30%
• Back End Debt to Income Ratio: 43%
• Monthly home-related costs of utilities, insurance, mortgage insurance: $300

The front DTI limits the maximum mortgage payment to around $1,200 per month, which combined with the $300 monthly expenses is 30% of your gross monthly income.

The back DTI limits the total housing expenses, all debt payments, and other mandatory payments to $2,050 per month.

Note that we’re being a bit lenient with the DTI limits. Typically lenders want to see front DTI ratios of 28% or less. By going with 30% here, there’s a chance that the actual rate you are offered might be slightly higher.

Max Mortgage without other debts on a $60k salary

If we assume that you can qualify for an FHA mortgage with just 3.5% down payment, and that you have no other debt or car payments, the highest value of house you can buy is in likely in the $180,000 to $200,000 range.

With a 10% down payment, you could buy a house up to $210,000 and with 20% down payment, this goes up to $240,000.

As can be seen in this case, the front DTI is what sets the limit on the maximum mortgage payment and hence the maximum value of the house you can buy. The Back DTI limit is not hit as there is simply unused debt capacity of around $500 to $550.

Some lenders might be willing to stretch their front DTI to 36% if you don’t have any other debts. With a $60k down payment (20% of home value), this would allow you to buy to buy a home costing $300k. However note that they will charge you significantly higher interest rates as your risk profile is now higher.

You can try out different values in our housing affordability calculator.

Max Mortgage with other debts on a $60k salary

If you have other mandatory loan payments of less than $550, then your maximum mortgage value does not change dramatically.

Using the same values as discussed above, but now with $150 of credit card payment, $250 for a car loan, and $150 for a student loan, the maximum value of a home you can afford stays the same at $215,000.

In this example, the other debt payments total up to $550 and can easily be accommodated by the Back DTI limit of 41%. If however your total debt payments go beyond $550, that will start limiting your maximum home value.

To determine what the picture looks like for your specific situation, please try using the housing affordability calculator.

With a down payment, can I buy a house making $60k a year?

One of the most critical factors in determining your ability to afford a $300,000 house is the down payment. Most lenders require a down payment ranging from 3.5% to 20% of the home’s purchase price. On a $300k home, a 3.5% down payment works out to approximately $10,500, whereas a 20% down payment works out to $60,000.

A larger down payment can result in one of two things:

1. ability to buy a more expensive home, assuming you max out your mortgage payment; OR
2. have a lower monthly mortgage payment as more of your home is paid off (assuming your home price stays constant).

The higher the down payment and the lower your other debts, the more likely you’ll get favorable mortgage rates. You are simply paying a large chunk of the overall cost upfront, giving your lender greater confidence. Of course, remember that mortgage lenders will want to make money on interest, too!

Your eligibility will vary depending on a few factors. For example, your mortgage provider will require a healthy credit history before you can set up a loan. This means you’ll need to prove you’ve paid essential bills on time and that you have debt under control.

It’s unlikely you’ll achieve a mortgage with a $60k salary if you have been through collections, or have bankruptcies and court judgements showing on file. You’ll need to try and improve your credit score before you can expect a loan as large as a mortgage to be easy to access.

Is it better to rent or buy?

If you’re unable to qualify for a mortgage for the house that you would like to buy, one temporary option would be to rent until you have enough saved.

While you can afford to pay $1,500 to $1,800 per month of rent on a $60k salary, if your ultimate aim is to own a home, your best bet is to reduce that figure as much as possible. You can try to live with roommates or even share with family.

Rigorously cut your debt, save away the cash for a down payment, and within a year or two, you could be back on the market with a better balance sheet. If you’re able to save and invest up to $1,000 a month, you’ll have saved up $30,000 (10% of the home value) in less than 3 years if you can generate a conservative 6%. Similarly, saving $500 a month will get you there in just under 5 years.

This would leave you in a better position to qualify for a mortgage even if interest rates don’t go down.

Before You Go…

Higher interest rates mean it’s become increasingly difficult to qualify for a mortgage. Qualifying to buy a $300k home on a $60k salary is not easy these days!

As always, having lower outstanding debt or high credit scores will help simplify your ability to qualify for the highest amount possible. Alternatively, if you’re able to increase your salary to $70k through side hustles or getting a promotion, your ability to qualify for a $300k home increases dramatically.

If you’re interested in seeing a few more examples, check out our article on what it takes to qualify for a $450k mortgage.

Or if your budget is tighter still, see if you can afford to buy a house if you’re earning $30k a year.