How Much Salary Do I Need to Afford a Home in Houston?

June 29, 2022

Real Estate

I make 50k a year; can I buy a house? Can I buy a house making 20k a year? These are some of the many questions first-time or interested homebuyers have. But a buyer’s salary in Houston is only one facet of the whole picture. 
 
Figuring out how much you can afford overall is an essential part of the home-buying process since buying a home is one of the most expensive purchases you can make. You will need to begin by determining how much money you have coming in, such as your monthly paycheck from your job, investments, and any other sources of income, and how much money you have going out, such as payments for your car note, credit card balances, and student loans. 
 
The amount of cash you can put toward purchasing, say, a single-family home is also significantly impacted by the location where you work and reside. Is Houston expensive to live in? Suppose you’re looking for a median-priced home near metropolitan areas. For the same money, you would likely be able to purchase a piece of real estate in one of the suburban areas in the Greater Houston area that is far larger than the same piece of real estate in pricey San Francisco.
 
Consider the neighborhood’s average cost of living as another factor in your decision. For instance, if you reside in a community where the expenses of utilities and food are relatively cheap compared to more expensive areas, you may be able to save some money in your budget to go toward the downpayment and monthly mortgage. 
 
Is the cost of living high in Houston? The United States Census Bureau reported that the cost of living in Houston, TX, is some of the most reasonable living costs in America. The average utility bill in Houston is more or less $194 per month.
 
What is a livable wage in Houston? According to the Houston Association of Realtors® (HAR), the current median home price in Houston is $330,800, requiring a salary range of about $73,600 to cover housing costs.
 

How Much Does Salary Impact Home Affordability?

 
The first rule for purchasing a property is not to spend more money than you have. Breaking this rule may have substantial financial repercussions. You might find yourself in a predicament where you are unable to pay your mortgage or make ends meet.
 
An example is spending so much on housing that you have little money left over for other things like basic necessities, recreation, and retirement. Having a home becomes a financial burden that you can’t afford. 
 
Knowing how much salary should go toward your mortgage is critical. To see how much of your money is left over for discretionary spending, run the numbers using the 28/36% rule.
 
Can I buy a house making 40k a year? Mortgage payments should not exceed 28 percent of your pre-tax monthly income and 36 percent of your total debt under this rule. This is known as the debt-to-income ratio (DTI). If you apply for a loan from a financial institution, you can expect to see the exact rigorous computation and specific annual salary requirements.
 
When calculating your 28/36 rule, include your stable income, not your expected future income, overtime incentives, or side-job revenue. 
 
When calculating the overall homeownership cost, the homeowner should also take other expenses into account. The typical American homeowner spends more than $13,000 on annual home repair and upkeep. This does not include their mortgage, property taxes, and homeowners association fees.
 

Salary is Just Part of How Much House You Can Afford

 

Down Payment Amount

 
Lenders require a down payment for most mortgages, and it’s also essential to have some money saved up to cover unexpected costs that may come up when you move into your new house.
 
Depending on the amount of your down payment, your monthly mortgage payment might vary significantly. Your monthly payments will be lower if you make a higher down payment than the minimum amount required by your lender. In 2021, the typical down payment for a house in Texas was 12 percent of the purchase price. When creating a preliminary housing budget based on your employment and other financial commitments, the size of your down payment will be critical.
 
When you’re ready to purchase, you should look into several financing options, particularly for first-time owners of homes in Houston. For example, you may be eligible for a zero-down payment Veterans’ Association loan. A Federal Housing Association loan, which only needs a 10% down payment, may also be an option.
 
Those with modest incomes may take advantage of USDA loans, which provide a zero-down payment option for qualified applicants. When you buy a house for the first time, it’s imperative to consider all of your financing options. 
 

Interest Rates / Credit Score

 
Lenders charge borrowers an interest rate, a portion of the loan amount, in return for granting them credit.
 
What a lender is willing to provide you as an interest rate is based on how well you’ve done with your credit. For example, if you have an excellent credit score and your debt-to-income ratio (DTI) is less than 36%, you will get a reduced interest rate. Low credit scores and a DTI of more than 36% will undoubtedly result in a higher interest rate, as lenders see your loan as riskier. 
 
For example, an “outstanding” score ranges from 750-850, while “good” is 700-749, “fair” is 650-699 and “poor” scores range from 300-649.
 
One’s credit score tells you a lot about one’s ability to handle money, and it’s a clear indicator of how financially responsible one is. Working to improve your credit score today may save you tens of thousands of dollars in the long run.
 

Mortgage Payments by Salary

 
Salary Monthly Gross 28% House Value (assuming 10% downpayment and 6% interest rate)
$20,000 $1,666.67 $466.67 $70,000
$30,000 $2,500.00 $700.00 $110,000
$40,000 $3,333.33 $933.33 $145,000
$50,000 $4,166.67 $1,166.67 $180,000
$60,000 $5,000.00 $1,400.00 $220,000
$70,000 $5,833.33 $1,633.33 $260,000
$80,000 $6,666.67 $1,866.67 $290,000
$90,000 $7,500.00 $2,100.00 $340,000
$100,000 $8,333.33 $2,333.33 $370,000
 

Best Houston Neighborhoods by Salary

 
Salary Range Houston’s Top Neighborhoods
Under $80,000 Medical Center, Gulfton, Five Corners, Brays Oaks, Denver Harbor
$80,000-$150,000 Oak Forest, Downtown Houston, Galleria, EaDo, Houston Heights, Midtown, Spring Branch, Timbergrove, 
$150,000-$250,000 Museum District, Garden Oaks, Memorial West, Montrose, Museum District
$250,000 and up Upper Kirby, Memorial Park, West University, Highland Village, Memorial Villages, Tanglewood 

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