Your mortgage payment for a $389k house will be $2,590. This is based on a 5% interest rate and a 10% down payment ($39k). This includes estimated property taxes, hazard insurance, and mortgage insurance premiums.
Purchasing a home is a significant life milestone, so it’s critical to be ready financially before making the purchase. Among the most crucial things to think about is how much money you’ll need to buy a $350,000 home.
The 28/36 Rule
The 28/36 rule is a commonly used heuristic in the real estate sector. This recommendation says that you should not spend more on housing expenses than 2028 percent of your gross monthly income and no more than 2036 percent of your total debt, which includes housing.
Let’s break down what this means for a $350K house purchase. Assuming a 20% down payment on a 30-year mortgage at a 7.5% interest rate, the monthly principal and interest payments come to $1,957. Don’t forget to include additional monthly costs like property taxes, homeowners insurance, and potential HOA dues. Let’s round that $1,957 up to $2,500 to account for these expenses.
Multiplying that monthly payment of $2,500 by 12 gives us an annual housing expense of $30000. To stay within the 28/36 rule, we triple that annual figure to approximate about a third of your income. This means that to comfortably afford a $350K house you would need to make around $90,000 per year.
Factors Influencing Affordability
While the 28/36 rule provides a general guideline, several other factors can influence how much house you can afford:
- Credit Score: A higher credit score helps you qualify for lower interest rates, saving you thousands of dollars over the life of your loan.
- Down Payment: A 20% down payment is traditional, but many mortgage products allow for lower down payments. However, a larger down payment reduces your monthly payments and avoids the need for private mortgage insurance.
- Debt-to-Income Ratio (DTI): Your DTI measures your debt obligations relative to your income, expressed as a percentage. A lower DTI makes you more attractive to lenders.
- Loan-to-Value Ratio (LTV): This metric compares your loan amount to the property’s value. A lower LTV is generally preferred by lenders.
- Down Payment Assistance: If a 20% down payment seems daunting, there are programs available to help, especially for first-time homebuyers. Explore options in your area.
Location Matters
The median home sale price in the U.S. as of September 2023 is $394,300. However this is just a median, meaning half of homes sold for more and half for less. There are plenty of homes around the country selling for around $350,000. But where you’re looking to buy makes a huge difference.
For example, the September median home price in Houston was $328,000, which is close to your target price. But your money won’t go as far in San Diego, where the median price was over $900,000.
Stay the Course
Buying a house is a complex process, and it’s important to stay vigilant about your financial picture throughout the journey. Once you go into contract on a home, you could have a long wait before closing. During this time, avoid making any significant financial changes that could impact your loan approval, such as applying for new credit cards or making large purchases.
FAQs
How much are monthly payments on a $350K house?
Your monthly payments will depend on the home’s cost, your down payment, interest rate, and other factors. For a $350K house with a 20% down payment, 30-year mortgage at 7.5% interest, the monthly principal and interest payments would be $1,957. This doesn’t include additional costs like homeowners insurance and property taxes, which vary depending on location.
What salary do I need to afford a $350K house?
Following the 28/36 rule, you would likely need to earn at least $90,000 per year to comfortably afford a $350K house. This figure doesn’t include upfront costs like down payment and closing costs.
What if I can’t afford a $350K house?
There are several options if a $350K house is out of reach:
- Consider a lower-priced home. Look for homes in more affordable areas or with fewer features.
- Increase your down payment. A larger down payment reduces your monthly payments and loan amount.
- Improve your credit score. A higher credit score can qualify you for lower interest rates.
- Explore down payment assistance programs. Several programs can help with down payment costs.
Remember, buying a home is a significant investment. Take your time, do your research, and make sure you’re financially prepared before taking the plunge.
How much will you need for a down payment?
A long time ago, you needed to make a 20% down payment to afford a home. Now, there are many mortgage products that allow you to make a much smaller down payment. Here are the down payment requirements for popular mortgage products.
- Conventional loans require a 5% down payment. Some first time homebuyer programs allow 3% down payments. Two examples are Home Ready and Home Possible.
- FHA loans require a 3. 5% down payment. Your intended residence must be the property you are purchasing in order for you to be eligible for an FHA loan.
- VA loans require a 0% down payment. Veterans and active duty members may be qualified for a VA loan.
- USDA loans require a 0% down payment. These mortgages are offered in the nation’s rural areas.
What Determines How Much House You Can Afford?
- A crucial step in the mortgage application process is your credit score. A high credit score will increase your chances of being approved for a When your monthly mortgage payment represents a greater percentage of your income, lenders will be more willing to grant you a mortgage.
- The purchasing power of your home may be impacted by homeowners association (HOA) fees. If you select a home with high association dues, you will have to select a less expensive property to sufficiently reduce the principal and interest payment to cover the HOA dues.
- Your other debt payments can impact your home budget. You may afford to make a slightly larger mortgage payment if you have minimal or no payments on any other debt. You may need to reduce your monthly mortgage payment if you have significant monthly payments for other loans, such as credit card, student, or auto loans, in order to ensure that you have enough money set aside to cover all of your expenses.