Wondering, How Much House Can I Afford with a $120K Salary?

If you’re earning $120,000 a year and thinking about buying a home, congratulations—you’re in a decent financial position. But before you start scrolling through real estate listings or booking showings, there’s one question that deserves your full attention: How much house can I afford with 120K salary?

Spoiler alert: there’s no one-size-fits-all answer. Your income is a great starting point, but your affordability depends on multiple factors such as debt, location, credit score, savings, and more. In this guide, we’ll break it all down for you so you can confidently budget for your dream home.

Is an Income of 120K Enough?

Yes! Earning $120,000 per year places you well above the U.S. median household income (which hovered around $74,580 in 2023, according to the U.S. Census Bureau). This gives you a good head start in qualifying for a mortgage, especially if your finances are in great shape.

But even with a six-figure income, the size of the mortgage you qualify for depends on your entire financial picture, not just your salary.

What Are The Key Factors That Affect How Much House You Can Afford?

To calculate how much house you can afford with a $120K salary, loan lenders—and you—should look at the following:

Income Stability

Your gross annual income determines how much you can borrow. If your $120K salary is steady and predictable, that gives lenders confidence in your ability to repay a mortgage.

Monthly Debt and Debt-to-Income (DTI) Ratio

Your Debt-to-Income (DTI) ratio is the percentage of your monthly income that goes toward paying debts. Lenders usually want to see a DTI under 36%, with no more than 28% going toward your housing costs (including mortgage, property taxes, insurance, etc.). Keep in mind that if you already have student loans, car payments, or credit card balances, these will reduce how much house you can afford.

Credit Score

Your credit score influences the interest rate you qualify for. A higher score (ideally 740 or above) means lower interest rates, which leads to smaller monthly mortgage payments and more buying power for a house.

Down Payment and Savings

A higher down payment helps reduce your monthly mortgage burden and improves your loan terms. 20% down is ideal, but it’s not always mandatory. Even a 5–10% down payment can work with some loan types.

Don’t forget to save for closing costs, which is typically 2–5% of the purchase price. Also, it’s wise to keep 3–6 months of emergency savings, even after you buy a home.

Property Taxes and Home Insurance

These vary by state and even ZIP code. Make sure to factor these expenses into your monthly budget.

Real Estate Market Considerations

Where you buy matters—a lot. In cities such as Austin or Denver, your $120K salary might only afford you a modest home. But in smaller towns or suburban areas, it could take you much further.

Here’s a look at the estimated affordability based on a $120K salary:

• In a low cost-of-living area: $500,000–$650,000 home
• Mid-range area: $400,000–$500,000
• High cost-of-living area: $300,000–$400,000

It’s best to use a home loan calculator or home affordability calculator to fine-tune based on local conditions.

What Is the 28/36 Rule for Taking a Home Loan?

Mortgage lenders often use the 28/36 rule to determine how much house you can afford. The idea is to:

• Spend no more than 28% of your gross monthly income on housing (mortgage, taxes, insurance).
• Spend no more than 36% on total debts (including credit cards, auto loans, student loans, etc.).

Let’s do some math. Suppose your monthly gross income is $10,000

• 28% of income (max housing expense): $2,800
• 36% of income (max total debts): $3,600

How Much House Can I Afford with 120K Salary? A Cost Breakdown

Let’s break it down for you.

Assuming you have:

• 30-year fixed-rate mortgage
• 7% interest rate
• $2,800 max monthly mortgage
• 20% down payment

You could afford a home priced around $450,000 to $500,000, depending on your other debts, credit score, and exact interest rate.

If you have minimal debt and a strong credit profile, you might even stretch toward $550,000–$600,000 with careful planning.

What Are the Common Mistakes Homebuyers Make (And How to Avoid Them)

• Focusing only on the sticker price of a real estate. Remember to include ongoing costs such as home maintenance, taxes, and HOA fees.
• Overestimating affordability. Just because you can qualify for a $3,600/month loan doesn’t mean you should.
• Ignoring closing costs. These add up quickly. Budget for 2–5% of the home’s value.
• Skipping the mortgage pre-approval. Always get pre-approved to understand your real budget before house hunting.

Should You Get Pre-Approved?

Yes. Getting pre-approved by a mortgage lender helps you:

• Set realistic expectations
• Stand out to home sellers
• Lock in favorable interest rates (sometimes for 60–90 days)
• Bring your pay stubs, W-2s, tax returns, and debt information to the meeting.

What Are the Best Home Loan Options for a $120K Salary

You have several great mortgage options:

• Conventional Loan: This is an ideal loan choice if you have a good credit score (≥ 680) and a 3–20% down payment.
• FHA Loan: Easier qualification, great for first-time buyers. Requires 3.5% down but includes mortgage insurance.
• VA Loan: Available to veterans and active-duty service members. No down payment required.
• USDA Loan: For eligible rural areas. No down payment, but income limits apply.
• Jumbo Loan: For home prices above conforming loan limits (around $766,550 in 2024). Usually requires a higher credit score and income.

Final Thoughts: Budget Smart, Buy Smart

So, how much house can you afford with a $120K salary? It’s likely between $400,000 and $600,000, depending on your personal finances and the housing market in your area. The key is not just to ask “what can I afford?”—but also, “what can I afford comfortably?”

Just remember to:

• Use the 28/36 rule
• Shop for competitive mortgage rates
• Factor in all monthly obligations
• Save for a down payment and closing costs
• Opt for a larger down payment if you can so comfortably
• Choose a loan that matches your monthly expenses and financial goals 

Buying a home is one of the biggest decisions of your life. With careful planning and realistic expectations, your $120K salary can take you a long way toward homeownership.

Written by Ramona Sinha. April 6, 2022

Ramona is the Senior Content Writer for Kukun. This experienced blogger uses simple and succinct words to decipher the complex phenomenon called life. She has written articles covering a broad range of topics, such as real estate, lending and mortgage, finance, business, taxation, home designs, home improvement projects, decor concepts, and more. An avid traveler, she’s a digital nomad at heart and an animal lover from the depth of her soul.