How much income do you need to buy a $250,000 home? (2024)

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MoneyWatch: Managing Your Money

How much income do you need to buy a $250,000 home? (2)

If you're in the market to buy a new home, it's important to consider how much that home costs and whether or not you can comfortably afford to purchase it. After all, the majority of people who buy a house agree toa 30-year commitmentto making their mortgage payments on time.

But if you're a first-time home buyer, it may be difficult to accurately estimate the cost of the home you can afford to buy. For example, let's say you fall in love with a $250,000 house. How much money would you need to earn per year to comfortably afford the mortgage payments on it? The answer is it depends.

Find out if you qualify for a $250,000 mortgage now.

How much income do you need to buy a $250,000 home?

There are a few different rules of thumb you'll come across online to determine how much house you can afford to buy on your current income. Two of the more common are the 28% of your income rule and the 2.5 times your income rule. Here's how those rules work and how much you would need to earn to comfortably afford a $250,000 home when using them:

The 28% of your income rule

According to the 28% of your income rule, you shouldn't spend any more than 28% of your income on mortgage payments. So, how much does a $250,000 home cost in terms of monthly payments? Here's what you can expect to pay with and without a down payment. (Payments were calculated using Bankrate's mortgage calculator. The data below assumes a 7% interest rate, a 30-year term, and that the home is located in the 32446 ZIP code):

  • With a 20% ($50,000) down payment: Your payments would be $1,561 per month or $18,732 per year with $1,330 going toward principal and interest, $165 going toward property tax and $66 going to homeowner's insurance.
  • With a 0% down payment: Your payments would be $1,894 per month, with $1,663 going to principal and interest, $165 going to property tax and $66 going to homeowner's insurance. That works out to $22,728 per year. It's also important to keep in mind that when you purchase a home with less than 20% down, you'll likely have to pay for private mortgage insurance (PMI). For example, if PMI costs $300 per month, your total mortgage payment would be about $2,194 per month or $26,328 per year.

Based on these figures and the 28% rule, you would need to earn about $66,903.57 per year to afford a $250,000 home with a 20% down payment — or about $81,171.43 per year to afford it with no down payment. When you factor in the cost of PMI, you may need to earn as much as $94,028.57 per year to purchase a $250,000 home with 0% down using the 28% rule.

Find out what your mortgage rate would be on a $250,000 home now.

The 2.5 times your income rule

If you follow the 2.5 times your income rule, you divide the cost of the home by 2.5 to determine how much money you need to earn annually to afford it. Based on this rule, you would need to earn $100,000 per year to comfortably purchase a $250,000 home.

What do the experts say?

Although rules of thumb can give you a general idea of your payment, it's not usually wise to follow these rules without considering your unique circumstances. After all, one rule says you can afford a $250,000 home if you make as little as $66,903.57 per year while the other suggests you should earn at least $100,000 per year to purchase a house at this price.

Ultimately, it all boils down to your circumstances and personal situation.

"There are several different factors that determine how much you can afford when buying a home," says Stacey Black, BECU's financial educator. Those factors include "your income, debt, down payment and interest rates."

Moreover, Black warns that you shouldn't assume you can afford any size mortgage you get approved for.

"It's important to remember that you could get approved for more than you can afford - only you know your future goals and spending habits that may impact how much you can truly afford," Black says.

Bill Banfield, executive vice president of capital markets at Rocket Mortgage, has a similar opinion.

"There are many factors that play into figuring out how much income is needed to purchase a $250,000 home," Banfield says. "Some of these include the amount of money the buyer chooses to spend on a down payment, their monthly debt and the tax and insurance costs for the home."

Though the amount of income you need to buy a $250,000 home is unique to you, Banfield says that Rocket Mortgage clients who buy a $250,000 home using its ONE+ mortgage "have an average annual income of $65,000."

However, Banfield warns that "because of all of the complex and intricate components that go into determining what a consumer can afford, it is best to consult professionals and shop around to find the most comprehensive solution" for your unique needs.

"Every borrower has their own unique financial situation," Joe Lamberti, vice president and general sales manager of residential lending at Rockland Trust Bank, says. "It's really important for prospective buyers to work alongside a mortgage loan officer to understand their options."

Find out the mortgage rates you could qualify for today.

The bottom line

Whether or not you can afford a $250,000 home depends on more than the cost of the mortgage payments and the size of your paycheck. You should also consider your spending habits and the amount you can comfortably spend on mortgage payments each month rather than following any particular rule of thumb when making this important decision.

Joshua Rodriguez

Joshua Rodriguez is a personal finance and investing writer with a passion for his craft. When he's not working, he enjoys time with his wife, two kids, two dogs and two ducks.

How much income do you need to buy a $250,000 home? (2024)

FAQs

How much income do you need to buy a $250,000 home? ›

If a borrower has no other debt obligations, a conforming loan for a $250,000 property with 10% down in a 7% rate environment would require a gross monthly income of approximately $3,870, factoring in a 50% debt ratio. This translates to an annual salary of around $46,450.

How much should I make to afford a 250k house? ›

Based on these figures and the 28% rule, you would need to earn about $66,903.57 per year to afford a $250,000 home with a 20% down payment — or about $81,171.43 per year to afford it with no down payment.

What income do you need for a 200 000 mortgage? ›

To be approved for a $200,000 mortgage with a minimum down payment of 3.5 percent, you will need an approximate income of $62,000 annually. (This is an estimated example.)

What credit score do you need for a 250k mortgage? ›

What credit score do you need to get a mortgage? Mortgage lenders typically want to see a score of 620 or better before approving a conventional mortgage. There are government-insured mortgages if your score is lower, and if your score is 760 or higher you'll qualify for the best interest rates.

How much of a down payment for a $250,000 house? ›

In other words, the purchase price of a house should equal the total amount of the mortgage loan and the down payment. Often, a down payment for a home is expressed as a percentage of the purchase price. As an example, for a $250,000 home, a down payment of 3.5% is $8,750, while 20% is $50,000.

Can I afford a 250k house on 50K salary? ›

You can generally afford a home for between $180,000 and $250,000 (perhaps nearly $300,000) on a $50K salary. But your specific home buying budget will depend on your credit score, debt-to-income ratio, and down payment size.

What house can I afford on 40K a year? ›

If you have minimal or no existing monthly debt payments, between $103,800 and $236,100 is about how much house you can afford on $40K a year. Exactly how much you spend on a house within that range depends on your financial situation and how much down payment you can afford to invest.

What credit score is needed to buy a house? ›

The minimum credit score needed for most mortgages is typically around 620. However, government-backed mortgages like Federal Housing Administration (FHA) loans typically have lower credit requirements than conventional fixed-rate loans and adjustable-rate mortgages (ARMs).

How much would a monthly payment be on a 200 000 mortgage? ›

Term Length And A $200K Mortgage

Let's look at an example of how your loan term affects your mortgage payment. At a 7% interest rate, a 30-year fixed $200K mortgage has a monthly payment amount of $1,331, while a 15-year fixed $200K mortgage at the same interest rate has a monthly payment amount of $1,798.

How much is a down payment on a 200K house? ›

How much is a down payment on a 200K house? A 20% down payment on a 200K house is $40,000. A 5% down payment is $10,000, and a 3.5% is $7,000. Talk with various lenders to see what you might qualify for.

How to get approved for a 250k mortgage? ›

8 Tips To Help You Get Approved For A Higher Mortgage Loan
  1. Improve Your Credit Score.
  2. Generate More Income.
  3. Pay Off Debts.
  4. Find A Different Lender.
  5. Make A Down Payment Of 20%
  6. Apply For A Longer Loan Term.
  7. Find A Co-Signer.
  8. Find A More Affordable Property.

What is a good credit score by age? ›

How Credit Scores Breakdown by Generation
Average FICO 8 Score by Generation
Generation20222023
Generation Z (ages 18-26)679 - Good680 - Good
Millennials (27-42)687 - Good690 - Good
Generation X (43-58)707 - Good709 - Good
2 more rows

What is a perfect credit score? ›

A perfect credit score of 850 is hard to get, but an excellent credit score is more achievable. If you want to get the best credit cards, mortgages and competitive loan rates — which can save you money over time — excellent credit can help you qualify. “Excellent” is the highest tier of credit scores you can have.

How to pay off a $250,000 mortgage in 5 years? ›

How to Pay Off Mortgage in 5 Years
  1. Refinance to a Shorter Term Mortgage Payment Schedule. ...
  2. Make Biweekly Payments. ...
  3. Round Up Your Mortgage Payments. ...
  4. Allocate Windfalls to Mortgage Payments. ...
  5. Make a Substantial Down Payment. ...
  6. Increase Your Monthly Payments. ...
  7. Lump-Sum Principal Payments. ...
  8. Assistance in Paying the Mortgage.
Nov 15, 2023

How to pay off $250k mortgage in 5 years? ›

Increasing your monthly payments, making bi-weekly payments, and making extra principal payments can help accelerate mortgage payoff. Cutting expenses, increasing income, and using windfalls to make lump sum payments can help pay off the mortgage faster.

Can I get a house making 25K a year? ›

Yes, you can buy a house if you make 25K a year. But purchasing a home on any income takes planning. You first need to understand how banks assess whether or not they'll give you a mortgage loan, what down payment assistance is available, and other factors that influence your ability to buy a house.

Can I afford a 300k house on a 60k salary? ›

An individual earning $60,000 a year may buy a home worth ranging from $180,000 to over $300,000. That's because your wage isn't the only factor that affects your house purchase budget. Your credit score, existing debts, mortgage rates, and a variety of other considerations must all be taken into account.

How much house can I afford if I make $70,000 a year? ›

As a rule of thumb, personal finance experts often recommend adhering to the 28/36 rule, which suggests spending no more than 28% of your gross household income on housing. For someone earning $70,000 a year, or about $5,800 a month, this means a housing expense of up to $1,624.

How much house can you afford with $50,000 salary? ›

If you earn $50,000 per year, you earn about $4,166.67 per month. At 28% of your income, your mortgage payment should be no more than $1,166.67 per month. Considering a 20% down payment, a 6.89% mortgage rate and a 30-year term, that's about what you can expect to pay on a $185,900 home.

How much house can I afford if I make $45000 a year? ›

On a salary of $45,000 per year, you can afford a house priced at around $120,000 with a monthly payment of $1,050 for a conventional home loan — that is, if you have no debt and can make a down payment. This number assumes a 6% interest rate.

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