How much house can I afford on $100,000 a year?

#A $100,000 household, debts included

Say the $100,000 comes from two salaries, $58,000 and $42,000. One partner has a $525 car payment; the other has $60,000 of student loans in deferment, so the credit report shows no payment. Together those debts count as $1,125 a month under Fannie Mae’s rules — 13.5% of gross pay before the house is counted.

Lenders measure everything against gross monthly income of $8,333. The table shows how much of it each conventional limit leaves for housing after those debts, and the price that budget buys at 7.24% with property tax at 0.89%, insurance at $4.90 per $1,000 and PMI at the midpoint of Freddie Mac’s range.

The spread is wide: the same household could be told $242,000 by one lender and $393,000 by another, depending on how the file is underwritten. With no debts, Freddie Mac’s 30% housing guideline alone points to about $323,000 — a price that reaches the state median home value in 23 of 51 states and DC at the national tax rate. Without the debts, the 45% limit would allow about $485,000; the car and student loans take about $146,000 off that. The debt-to-income guide walks through how the ratio itself is calculated.

#How the student loans are counted matters more than the balance

A deferred loan has no payment today, but lenders still count one, and the rule depends on the program. Fannie Mae uses 1% of the balance (or a fully amortizing payment from the loan terms); FHA uses 0.5% of the balance when the reported payment is zero. A documented income-driven payment can replace the percentage rule.

Getting a documented income-driven payment of $180 on file instead of the 1% rule adds about $55,000 of buying power at the conventional limit. If the loans are deferred only because the borrower is between plans, it can pay to enroll and get the servicer’s payment letter before applying. Under FHA’s manual limits the 31% housing cap binds before the total-debt limit does, so for this household the student loans don’t lower the FHA price at all — the cap does.

#The car payment: pay it down, pay it off or leave it

A $525 car payment removes about $68,000 of price at today’s rate. Three ways to handle it:

• Leave it. If the ratio still fits with room to spare, keeping cash for the down payment and reserves is often the better use of money.
• Pay it down to 10 or fewer payments. Fannie Mae can leave an installment loan out of the ratio at that point, though a lender may still count a large payment that affects your ability to pay.
• Pay it off. This frees the full $525 a month, but only helps if the cash isn’t needed for closing.

#5% or 10% down, conventional or FHA

At this income, the household could choose between a smaller down payment with mortgage insurance or a larger one. Here is the same $350,000 home three ways, with the debt-to-income ratio each one produces for this household:

Going from 5% to 10% down costs $17,500 more in cash and saves $128 a month. It also moves the date PMI ends automatically — when the balance is scheduled to reach 78% of the price — from year 13 to year 10 of the loan. Either way, budget closing costs of $7,000–$17,500 (2%–5% of the price) on top, and keep reserves after closing; a bigger down payment that empties your savings is not a safer loan. FHA shows the lower debt-to-income ratio even though its monthly cost is close to the 5% conventional loan, because it counts the deferred student loans at half the rate Fannie Mae does. FHA’s premium of 0.55% a year stays for the life of the loan with less than 10% down, while conventional PMI comes off on the schedule above — so over many years conventional usually wins if the ratios work. The down payment guide compares more down-payment levels.

#One income or two on the application

Couples sometimes ask whether to leave the partner with debts off the loan. Every borrower’s income counts, but so does every borrower’s debt. If only the $58,000 earner with the car loan applied, the budget would be the lower of 30% of that income and 45% minus the car payment: about $1,450 a month, or a $187,000 home. Applying together, with both debts counted and housing held to the 30% guideline, supports about $323,000.

In this example, applying together is the stronger application, even with the student loans counted. The answer flips when one partner’s debts are large relative to their income, or when their credit score is low enough to raise the rate or mortgage insurance for both. A loan officer can price the file both ways before you commit.

#Steps for a two-income application

1. 1

   Pull both credit reports

   Check every debt each of you carries and dispute errors before a lender sees them.

2. 2

   Get student-loan payment letters

   If either loan is deferred or on an income-driven plan, ask the servicer for a letter showing the payment that will apply.

3. 3

   Decide what to do with the car loan

   Run the ratio with the car payment, with it paid down to 10 payments and with it gone.

4. 4

   Choose the down payment

   Compare 5% and 10% down on monthly cost, cash left for reserves and how soon PMI comes off.

5. 5

   Ask lenders to price conventional and FHA

   The student-loan rules differ, so the same household can qualify for different amounts.

6. 6

   Set your own ceiling

   Pick a payment that works on take-home pay, then get pre-approved at that price, not the maximum.

Try the affordability calculator with this household’s numbers and change the debts to match yours.

#Where this leaves a $100,000 household

Plan around $323,000 if you carry no other debts, and expect lender approvals between $242,000 and $393,000 with a car loan and deferred student loans like these. The two biggest levers are how the student loans are documented and whether the car loan stays. For a smaller budget, see what $75,000 buys; for higher-cost markets and the jump to 20% down, see what $150,000 buys.