Determine your budget | Location | Down payment | Do you qualify? | Choose the right mortgage | Calculate your monthly payment | Cost of living | Closing costs | Hidden expenses | Can you afford a home?
It's possible to afford a house worth anywhere from about $190,000–$260,000 on a $48,000 a year salary.
But income isn't the only detail to consider when buying a home. Factors such as the location of your home, the size of your down payment, and your interest rate will determine what you can afford.
Before buying, run the numbers with a financial expert and talk with a local real estate agent to help you find a home in your price range.
When you use Clever Real Estate's free service, you'll be matched with a top agent in your area and get 0.5% cash back on qualifying home purchases.
Determine your budget
Financial experts recommend spending no more than 28% of your gross monthly income on a mortgage and no more than 36% on total debt.
Your gross monthly income is what you earn before taxes. If you make $48,000 a year, divide by 12 to get your monthly income — $4,000.
To calculate how much should go toward housing, multiply your gross monthly income by 0.28.
Figuring how much you should spend on debt is similar. Multiply your gross monthly income by 0.36.
According to these calculations, you shouldn't spend more than $1,120 on a mortgage payment or more than $1,440 on your total debt each month.
Lenders use this 28/36 rule to determine how much you can safely borrow. Before starting the home-buying journey, crunch the numbers to know what's in your budget.
Location, location, location
How much house you can afford will largely depend on where you live.
In 2021, much of the U.S. experienced a seller's market characterized by fierce demand for a low number of homes, sending prices soaring. But there are pockets of the country where it's still very affordable to buy a home.
The cheapest places to live are generally in the South and Midwest.
For example, in Arkansas, the average home value is roughly $147,000 with an estimated monthly mortgage payment of about $600. If you make $48,000 a year, that's only 15% of your gross monthly income — well below the recommended 28%.
The farther north, east, and west you go, the more expensive it is to buy a home.
Think about your down payment
The size of your down payment has a big impact on what you can afford. The more money you put down up front, the less you have to finance. That results in lower payments each month.
Traditionally, a standard down payment is 20% of the purchase price. Put down less than that, and you'll likely have to pay private mortgage insurance (PMI), which protects the lender if you default on your loan. PMI usually equals 1% of your home's price each year, and you'll pay it monthly until you have at least 20% equity.
Yet many home buyers still opt for a smaller down payment. In 2020, the median down payment was 12% for all buyers, according to a study from the National Association of REALTORS(NAR). First-time buyers put down 7%, and repeat buyers put down 16%.
How much house you can afford
Assumes 3% fixed-rate interest on a 30-year loan and no monthly debt.
Providing a small down payment permits you to buy a home sooner. Houses are appreciating fast. If you wait several years to save a 20% down payment, you may be priced out of homes you could previously afford.
Less money up front also allows you to save for home maintenance and repairs.
Certain loan programs from the Federal Housing Administration (FHA), the U.S. Department of Agriculture (FDA), and the U.S. Department of Veterans Affairs (VA) require as little as 3.5% down — or no down payment at all.
The drawback is that a low down payment leaves you with a large outstanding balance on your loan, so you'll pay more in overall interest.
If you just can't swing a large down payment, your state may have assistance programs for first-time buyers.
Do you qualify for a mortgage?
Lenders will look at a variety of factors when reviewing mortgage applications. Two key ones are debt-to-income ratio and credit score.
Your debt-to-income ratio (DTI) is the percentage of gross monthly income spent on repaying money you owe. Your DTI shows lenders if you are capable of assuming more debt.
A healthy DTI is 36% or below. Anything above that will be considered risky and subject to higher interest rates. Most lenders will not extend a line of credit to anyone with a DTI exceeding 41–43%.
To calculate your DTI, add all the debt you owe each month. Then divide the sum by your gross monthly income and multiply by 100.
If you make $48,000 a year and adhere to the 28/36 rule, you shouldn't spend more than $1,440 on debt. If you have the maximum qualifying debt ratio of 43%, the most you could spend on debt is $1,720 — although we don't recommend this.
Total monthly debt
Even if you technically qualify for a loan, it's probably not a good idea to push your budget to the max. Before buying a house, consider paying off some of your debt to lower your DTI.
Lowering your DTI will yield lower interest rates and room in your budget for a more expensive home. Plus, you'll have a safety net in case of emergencies.
Monthly mortgage payment
How much house you can afford
Assumes 20% down payment on a 30-year loan with 3% fixed-rate interest.
A credit score evaluates your credit risk and shows lenders if you have a proven track record of paying your debts back on time. A good score is essential to qualifying for a mortgage and getting the best interest rate.
Scores range from 300–850, with most conventional loans requiring a score of at least 620. The higher your number, the more confident lenders will feel giving you money, increasing how much you can borrow.
Credit scores are generally graded on this scale:
- Excellent: 800–850
- Very good: 740–799
- Good: 670–739
- Fair: 580–669
- Poor: 579 or below
Low-credit loans make buying a home with bad credit possible. But you'll likely end up with a steep interest rate, costing you more each month and over the course of your loan.
Types of mortgages
Conventional fixed rate
The most common type of home loan is a conventional fixed-rate mortgage in which the interest rate is constant throughout the loan. In 2020, 64% of buyers chose this option when financing their home, according to a study from the NAR.
A conventional mortgage is great for buyers with good credit and income. A 20% down payment is preferred but not required. Buyers with less than a 20% down payment will need to carry PMI.
The good news is you don't have to pay PMI forever. You can ask the lender to cancel it once you reach 20% equity — the amount of home you actually own.
Loans subsidized by the government protect lenders in case of default. As a result, they're incentivized to relax qualifying standards and make home buying more accessible.
FHA loans are popular among first-time home buyers with limited savings and a spotty credit history. NAR data shows that 24% of first-time buyers sought FHA loans compared to just 11% of repeat buyers.
Be aware that FHA loans carry higher mortgage insurance costs. FHA mortgage insurance is a bit different from PMI. If you pay only the minimum down payment, you're stuck with the premium throughout the life of the loan.
Additionally, sellers are less likely to accept an offer backed by an FHA loan, the NAR reported.
If you're a veteran or active-duty member of the U.S. military, you may be eligible for a VA loan. The loans require no money down and no mortgage insurance. They also come with competitive interest rates and relaxed credit requirements.
Similarly, USDA loans don't require a down payment. What's the catch? They are reserved for rural home buyers. Applicants must purchase a home in a designated rural or suburban area and earn less than the low-income level set for that community.
Preferred down payment
Minimum credit score
Borrowers with moderate to excellent credit
Borrowers with poor credit
Varies by lender (620–640 is typical)
Veterans, service members, and surviving spouses
Varies by lender (640 is typical)
How to calculate your monthly payment
A mortgage payment is made of four main components: principal, interest, taxes, and insurance. Principal and interest are usually a set amount, but taxes and insurance fluctuate over time. We'll break down each factor to help you understand where your money is going each month.
Principal is the remaining balance on your loan after your down payment. If you pay $50,000 up front on a $260,000 home, your principal is $210,000.
One of the best ways to lower your monthly mortgage is to provide a large down payment because it reduces your principal.
Determining how much principal you'll pay each month isn't as simple as dividing the balance by the number of months left in the loan. Early on, most of your payment goes toward interest, with only only a small portion going toward the principal balance.
That's because interest is based upon the current outstanding balance. Once you pay back some of what is owed, you'll pay less in interest and more in principal.
If you're able, making additional payments early will allow you to build equity faster, leading to fewer payments and more savings.
A high interest rate will drive up your monthly payment, while a low interest rate will bring it down. The good news is that interest rates remain near record lows, and they are likely to stay that way as the economy recovers from the coronavirus pandemic.
The average interest rate changes every day, but it's hovering around 3%. If you get a fixed-rate mortgage — and most people do — your rate will always stay the same.
A riskier option is an adjustable-rate mortgage. It initially comes with low rates, but if the rate rises over time, so will your monthly payment. This type of mortgage isn't recommended for buyers who want to stay in their homes long term.
How much interest you pay will also depend on the length of your loan. Loans with shorter terms usually have lower total interest costs but higher monthly payments.
Higher monthly payments mean you'll qualify for a smaller loan, and it will limit how much house you can buy. Keeping payments low with a 30-year mortgage will give you more choices.
30-year interest rate
How much house you can afford
15-year interest rate
How much house you can afford
Assumes $48,000 annual salary, 20% down payment, $1,120 monthly mortgage, and no monthly debt.
Property taxes are often bundled into your monthly mortgage payment.
The annual bill is based on your home's estimated value and the tax rate set by your local government. What you pay will largely depend on whether you live in a low- or high-tax area.
For example, homeowners in New Jersey pay $7,991 in annual taxes on the median home value, compared to homeowners in Alabama, who pay only $550.
Monthly tax payments are typically held in an escrow account set up by your lender. When the annual bill is due, the lender will pay the government on your behalf.
Depending on how accurately the municipality assessed your property, you may have a shortage or a surplus in your account. That's especially true if your home's value increases or your local government raises the tax rate.
Be prepared to pay extra if there's a shortage. If you're lucky, you just might receive a refund check.
Home insurance varies because of several factors, including the condition of your home and where you live. States prone to natural disasters — like Oklahoma, Louisiana, and California — will have some of the highest premiums.
Homeowners in metropolitan areas may also pay more in home insurance because of higher home values and crime rates. If several of your neighbors file claims because of an uptick in crime, everyone's rate could go up.
Remodeling your kitchen or building an addition can also cause a spike in rates, as your home will now cost more to replace if you file a claim.
Shop several insurance companies each year to make sure you're getting the best rate.
Mortgage affordability calculator
Want to figure out your payment? Try our mortgage calculator to get a rough estimate.
Let's say you put down 20% on a $260,000 house with a 30-year fixed-rate mortgage with 3% interest. Using the mortgage calculator and U.S. averages for property taxes and home insurance premiums, the graph below shows the breakdown of what you'd spend on your first payment.
The result is just over the $1,120 payment recommended by the 28/36 rule.
Cost of living by city
As you know, home prices, taxes, and insurance vary by location and can make your monthly payment higher or lower than average. Here's how far your money will go in two different cities.
Morgantown, West Virginia
Monthly mortgage payment
Price per square foot
Average state property tax rate
Approximate annual property tax payment
Average annual home insurance premium
How much house you can afford
$267,000 (1,854 sq. ft.)
$160,000 (707 sq. ft.)
Assumes a 30-year fixed-rate mortgage with a 20% down payment, 3% interest, and no monthly debt. Based on average state property taxes and insurance premiums compiled by WalletHub and Insurance.com, respectively.
For more accurate results, know your monthly insurance premium and property tax rate. Even if you feel confident with your budget, we recommend talking to a financial adviser.
A realtor can also help you learn more about prices in your area. If you're looking for an agent, Clever can help! Clever connects you with top realtors in your area who can help you find an affordable home. Plus, eligible buyers get 0.5% cash back.
Don't forget about closing costs
When deciding how much house you can afford, don't forget to factor closing costs into your budget.
Closing costs are typically 3–5% of the purchase price and include fees paid to various third parties for the appraisal, inspection, title insurance, and other mortgage-related expenses.
Along with your down payment, these costs should be added to the out-of-pocket cash you'll need on closing day.
If you're buying a $260,000 house, expect to pay between $7,800–$13,000 in closing costs.
Hidden costs of homeownership
Homeownership will include expenses that don't show up in your monthly mortgage payment. Instead of buying the most expensive house you can afford, consider a lower-priced option so you have wiggle room in your budget for some of these hidden expenses.
Maintenance and renovation
The biggest regret among homeowners is the amount of upkeep their properties require, according to a Clever survey of 1,000 owners.
Maintenance expenses across the U.S. average more than $2,600 every year, but 25% of homeowners have less than $500 saved for repairs.
A general rule of thumb is to set aside 1–4% of your home's value in a maintenance fund. You'll be glad you did when your air conditioner breaks in July.
If you’re a first-time home buyer moving from an apartment, a larger living space might cost more to heat and cool than you’re used to.
You'll also likely spend more on water, sewage, and garbage bills — especially if you were lucky and previously had these bundled into the cost of your rent.
Homeowners association (HOA) fees
Some residential communities have a homeowners association that pays for the cost of shared amenities like a pool or community center. Joining the HOA may be required, and you'll need to pay those dues.
An HOA member in a single-family home pays on average between $200–$300 a month, according to Realtor.com, but the cost varies by neighborhood.
Can you afford a home?
It’s possible to afford a home on $48,000 a year, but how much house you can buy depends on several factors besides salary.
Think about your budget and ask yourself these questions.
- Do you have enough cash saved for a down payment and closing costs?
- Will your monthly mortgage payment be more than 28% of your gross monthly income?
- Do you have debts that you need to pay off first?
- Are you comfortable paying a mortgage or will it stretch you financially?
- Do you have savings for emergency repairs or house payments if you lose your job?
Lenders may qualify you for a loan larger than your budget, but stick to what you can afford. Consider homes in the middle of your price range so you won't be strapped for cash. You'll have peace of mind knowing you can splurge on a renovation or have cash reserves in an emergency.
If you're thinking about buying a home, Clever can help. We'll connect you with a local real estate agent who can help you find the right home in your price range. The service is free, and there's zero obligation.
If you buy with a Clever Partner Agent, you get 0.5% cash back on qualifying purchases to spend on whatever you want. Recoup some of the money you spend on closing costs or put it toward a renovation on your new home.