How much mortgage can i afford with 120k salary?

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When considering purchasing a home, one of the most important factors to consider is how much mortgage you can afford. With a salary of $120,000, it’s crucial to determine a realistic budget that takes into account your income, expenses, and financial goals. By understanding the key factors that influence mortgage affordability, you can make informed decisions and ensure a comfortable financial future.

Calculating Mortgage Affordability

To determine how much mortgage you can afford with a $120,000 salary, several factors need to be considered:

Debt-to-Income Ratio: Lenders typically use the debt-to-income (DTI) ratio to assess your ability to repay a mortgage. This ratio compares your monthly debt payments to your monthly income. A lower DTI ratio indicates a healthier financial situation and increases your chances of being approved for a mortgage. As a general guideline, a DTI ratio of 36% or lower is recommended.

Down Payment: The amount of money you can put towards a down payment affects the size of the mortgage you can afford. A larger down payment reduces the loan amount and can help you qualify for a lower interest rate. While a 20% down payment is often recommended to avoid private mortgage insurance (PMI), there are options available for smaller down payments.

Interest Rates: Mortgage interest rates play a significant role in determining your monthly mortgage payment. Lower interest rates result in lower monthly payments, while higher rates can increase your monthly expenses. It’s essential to stay informed about current interest rates and consider their impact on your budget.

Other Expenses: In addition to your mortgage payment, you need to consider other housing-related expenses, such as property taxes, homeowner’s insurance, and maintenance costs. These expenses can vary depending on the location and size of the property.

Using the 28/36 Rule

One commonly used guideline for determining mortgage affordability is the 28/36 rule. According to this rule, your monthly housing expenses, including mortgage principal and interest, property taxes, and insurance, should not exceed 28% of your gross monthly income. Additionally, your total monthly debt payments, including housing expenses, credit card payments, and other loans, should not exceed 36% of your gross monthly income.

Applying the 28/36 rule to a $120,000 salary, your monthly housing expenses should ideally be around $2,800 (28% of $10,000) or lower. Similarly, your total monthly debt payments should be around $3,600 (36% of $10,000) or lower.

Considering Affordability Factors

While the 28/36 rule provides a general guideline, it’s important to consider your individual circumstances and financial goals. Here are a few additional factors to consider when determining how much mortgage you can afford:

Emergency Fund: It’s crucial to have an emergency fund to cover unexpected expenses. Before committing to a mortgage, ensure you have enough savings to handle emergencies without jeopardizing your ability to make mortgage payments.

Future Financial Goals: Consider your long-term financial goals, such as saving for retirement, education expenses, or starting a business. Allocating a portion of your income towards these goals is essential and may impact the amount of mortgage you can afford.

Lifestyle Expenses: Assess your lifestyle expenses and determine how much you are willing to allocate towards housing. Consider your spending habits, travel plans, hobbies, and other discretionary expenses when determining your mortgage affordability.


Determining how much mortgage you can afford with a $120,000 salary requires careful consideration of various factors, including your debt-to-income ratio, down payment, interest rates, and other expenses. While the 28/36 rule provides a useful guideline, it’s important to consider your individual circumstances, financial goals, and lifestyle expenses. By taking these factors into account, you can make an informed decision and ensure a comfortable financial future.


– Investopedia:
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