How Much House Can You Afford with $50k Salary: Interest Rates, Down Payments, Loans and More

When living in a larger metro like Seattle, WA, a $50k salary won’t help you get very far when it comes to owning property, but that doesn’t mean you can’t own property in more affordable areas of the country. It’s understandable to want to get away from the fear of rent increases in your apartment in San Francisco, CA and start to build equity in your home. The first step on this journey is to figure out how much house you can afford with a $50k salary. 

Using Redfin’s mortgage calculator, on a $50k salary with zero current debts, 20% down payment, and a 36% debt-to-income ratio, you’ll be looking at homes valued at $205,000 and below. This might not seem like a lot, but there are many ways to help increase what you can afford or decrease the monthly mortgage payment. And if homeownership seems out of reach right now, it’s okay to rent until you feel ready. Owning a home is a big responsibility, so it’s important to be financially ready for all the added expenses that come with it. Read on to explore more in this Redfin Real Estate article.

Factors that affect what you can afford:
What’s your credit score?
How large of down payment can you afford?
What’s your debt-to-income ratio?
What are the current interest rates?
Where are you trying to live?
How much work does the house need?
The bottom line: know what you can afford

What’s your credit score?

In a nutshell: A higher credit score may qualify you for better loans with lower interest rates, allowing you to afford a house with a higher asking price.

If you’re paying cash for your home, you can skip this section — sellers only care that you can cover the full amount. But if you’re financing the purchase, like most Americans, your credit score will significantly impact what you can afford.

Exceptional (800+): You qualify for the best rates available and can have your pick of lenders. 
Very good (740-799): These borrowers also tend to qualify for high-quality interest rates
Good (670-739): This is where you’ll start to see a slight increase in interest rates, but this range is considered favorable.
Fair (580-669): Interest rates in this range can start to increase more.
Poor (579 or lower): If you’re in this range, you’ll pay significantly more in interest, and securing a mortgage can become much harder.

Don’t worry if your credit score is toward the lower end of this range, there’s still plenty you can do to improve it and save thousands in interest on your home loan. If you want to improve your credit score, make sure to pay your loans on time, don’t get too close to your credit limit, and decrease your outstanding debt.

How large of a down payment can you afford?

The bottom line: Aim to pay a 20% down payment if you can afford it and still have enough saved to cover any emergency expenses. The larger the down payment, the smaller your monthly mortgage payments will be.

Your down payment size has a big impact on how much house you can afford on a $50k salary. If you can put down 20%, you’ll likely avoid private mortgage insurance (PMI), which typically costs 0.5% to 1.5% of your loan annually. PMI protects the lender, but reaching that 20% threshold can save you money.

A larger down payment usually means a lower monthly mortgage bill, so it’s wise to contribute as much as you can, without draining all your savings.

What’s your debt-to-income ratio?

In summary: Aim for a DTI that is less than 36%, meaning 36% of your monthly gross income goes to paying debts. Ideally, you’ll want only 28% of your gross monthly income to be spent on total housing expenses, but this can be pushed if you’re willing to budget a little more. 

Debt-to-income (DTI) ratio is a way to compare your monthly debt payments with your gross monthly income. Lenders will use this ratio as a way to determine your ability to repay your loans. A higher DTI could result in increased mortgage rates, while a lower DTI suggests a stronger ability to manage debt and is more favorable to lenders. To calculate your DTI, follow the formula below:

DTI = (Total monthly debt payments / gross monthly income) x 100

Let’s say you spend $500 a month on credit card minimums, a car payment, and student loans. With an annual gross income of $50k, your monthly gross income would be $4,166. Therefore, your DTI would look something like this:

DTI = ($500 / $4,166) * 100 = 12%

This means that 12% of your income is going to paying off monthly recurring debt payments. Most lenders prefer a DTI that is less than 36%, but many lenders offer exceptions for ratios up to 45% or 50% for an FHA loan.

Using the 28/36 rule

Even though you could get approved for a mortgage, it’s usually a good idea to follow the 28/36 rule. The 28/36 rule states that you should spend a maximum of 28% of your gross monthly income on total housing expenses (mortgage payments, property taxes, homeowners insurance premiums, and homeowners association fees) and no more than 36% on total debt service. 

Following the 28/36 rule may increase your chances of securing a mortgage at a favorable rate without risking defaulting on your debts. When trying to decide how much house you can afford with $50k, it’s important to keep in mind your debts. Lenders pay attention, and it can affect which types of properties you can consider in your price range.   

What are the current interest rates?

Key takeaways: Knowing the current interest rates can be helpful, but be careful not to get paralyzed waiting for a drop that may never come. The best time to buy a house is when you can afford it.

Even small shifts in interest rates can cost or save you thousands over the life of your loan. Higher rates reduce how much home you can afford, while lower rates may let you stretch your budget a bit further.

It’s tempting to keep asking, “Is now a good time to buy?”— but trying to time the market rarely pays off. The best time to buy is when you’re financially ready. If rates drop later and your credit is solid, you can always refinance.

Where are you trying to live?

Main points: If you’re willing to live in a more rural area, you may be able to afford a little more house on your $50k salary. 

Location, location, location. Depending on where you want to live, your $50k could get you a small three-bedroom house outside of Oklahoma City, OK or a condo outside of Portland, OR. Of course, this doesn’t take into consideration if your income is impacted by a move. With a remote job, you have more flexibility if you’re looking at moving to a different state, but your income could change.

However, you don’t need to move to a different state to stretch your $50k a little further. Sometimes living just a few extra minutes out of the city can afford you the opportunity to stretch up to a nicer house with more space or more walkability. Location, location, location – there’s a reason real estate agents say it so much. It really is an important factor in where you choose to live. 

How much work does the house need?

In a nutshell: You can get more house with your $50k if you have the skills and time to put in some sweat equity.

How much house you can afford with a $50k salary also depends on how much work you’re willing to put in. If you’re handy and don’t mind some DIY, buying a fixer-upper can stretch your budget further. Just be cautious—there’s a big difference between cosmetic updates and major structural issues. Always have a professional home inspector evaluate the property before you close the deal.

The bottom line: know what you can afford

Now that you’ve got a better idea of all that goes into deciding how much house you can afford with a $50k salary, you’re better prepared to start touring homes and making offers. To get a better understanding of exactly how much you can afford, play around with Redfin’s mortgage calculator to calculate a DTI that works for you and start to look at homes in your price range where you’re wanting to settle down.