What Income Do I Need to Afford a $300K House? Defining How Much House You Can Get for Your Money (2024)

Vault’s Viewpoint

• Keeping your other debts low will help you qualify for a $300K house
• When you have a good credit score, a $300K mortgage is more affordable
• If you want to increase your approval odds, consider putting down an higher down payment

Income Needed To Afford a $300K Home

A mortgage amount that’s affordable to one borrower may not be affordable to another.

Factors such as current debts, loan type and interest rates vary from person to person and can affect how much money someone is able to borrow in a mortgage. Credit scores vary even among borrowers with the same income and assets.

Your credit profile can affect the interest rate you get and, by association, could affect the monthly mortgage payment. If your credit profile is strong, a borrower with a low income and no debt may be able to afford a $300K home. People with high incomes may not qualify if they have a lot of debt compared to people with low incomes.

A 30-year mortgage at 6% interest with a 20% down payment would cost around $1,703 per month if you have excellent credit and meet other qualifying factors. However, if your credit score gets you a 7.5% interest rate, your payment could be as high as $1,942.

The difference is $239 a month or $2,868 a year, so you would have to earn more to qualify. These numbers also account only for the principal and interest—you must still cover the property taxes, homeowner’s insurance, home maintenance and other monthly costs.

Lenders often use the 28/36 rule to determine what they can afford. According to this rule, your mortgage payment should not exceed 28% of your gross monthly income (earnings before taxes). Additionally, your total debt (mortgage plus other debts) shouldn’t exceed 36% of your gross monthly income.

Take the example of someone who earns $80,000 a year. Dividing that 80k by 12 gives you a monthly salary of $6,666.67. If you multiply your monthly salary by 0.28 (28%), you get $1,866.67. In total, your monthly housing payment, including principal, interest, property taxes, homeowners insurance and HOA fees, should not exceed $1,866.67.

Where Can You Find a $300K Home?

Finding a $300K home isn’t as hard as it seems. Many cities around the country have median home prices around $300K, and some areas have much higher or much lower median sales prices.

For example, according to Redfin data, Chicago, IL, has a median home sales price of $336,250; in New Orleans, the median sales price is $325,000. Other great places to find a $300K home include Great Falls, Montana, and Savannah, Georgia.

The median sales prices on the East Coast increase significantly, like in New York City, where the median price is $775,000, and in Boston, Massachusetts, where the median price is $735,000.

If you travel west, the median home price in San Francisco is $1.3 million, and $450K in Boise, Idaho.

Also, many areas have median home sales prices much lower than $300K, such as Memphis, Tennessee, where the median sales price is $189,000, or Montgomery, Alabama, where the median sales price is $160,000.

How To Qualify for a $300K Home

The next step is to learn how to qualify for a $300K house based on your income.

Fortunately, lenders take a look at the big picture, considering many factors when deciding if you can afford to purchase a $300K home.

To raise your approval odds, ensure all things are in order including your credit score, income, employment, down payment and debt-to-income ratio (DTI). The more you can improve each factor, the higher your chance of approval.

1. Check Your Credit

You can get free access to one credit report from each of the three major credit bureaus annually on AnnualCreditReport.com. Use this tool to get a comprehensive look at your credit profile as you prepare to apply for a mortgage.

Many banks and credit card companies also offer free credit score monitoring, so you may be able to track your credit score that way. For the best approval odds, we recommend having a credit score of 660 or higher when applying for a mortgage.

If you notice any errors on your credit report, fix them as soon as possible. The changes may take a few months to take effect, so check your credit early.

2. Stabilize Your Income

Lenders look for adequate and stable income, and many lenders prefer that you have a 2-year history at the same job with stable or increasing income. You must provide proof of income, such as pay stubs, W-2s and/or tax returns, depending on the type of income you earn.

Try to stay within the same industry if you change jobs. If you don’t, make sure you have proper training or education to prove you’re capable of succeeding in your field. If you want to obtain a loan, you must prove to lenders that you will be able to maintain a stable job for the foreseeable future.

3. Calculate Your Debt-to-Income Ratio

Lenders use your debt-to-income ratio (DTI) to determine whether you can afford a mortgage on a $300K house based on how many other debts you’re carrying. If you have a lot of active debt, your DTI will be higher and you will have a harder time qualifying for a competitive mortgage.

Use the 28/36 method to determine if your income allows room for a mortgage on a $300K home. Even if your front-end ratio (the mortgage payment versus your income) is 28% or less, lenders will also calculate your back-end ratio.

The back-end ratio is the total of your current debt and the new mortgage compared to your monthly income. Qualifying can be challenging if this ratio exceeds 36%. Paying off your debts, however, will increase your chances of approval.

4. Set Your Budget

Calculate how much you can afford to pay each month for a mortgage. Just because you can afford a $300K mortgage payment doesn’t mean you have to spend that much.

Your budget will look a lot different on paper than it will feel in ‘real life.’ Play with the numbers and consider acting as if you have the mortgage payment for a few months to see how much money you have left.

5. Save for a Down Payment

Having a down payment of at least 20% increases your chances of qualifying for a $300K home.

To meet a 20% down payment on a 300K home, you should have at least $60,000 saved. Remember, this total is separate from your closing costs. On average, expect to pay 3% to 6% of your loan amount in closing costs. It’s best to err on the side of caution and have more than you think you’ll need.