A $60,000 income is within a healthy range for buying your first home. Check out this example to see how the budget breaks down.
While home prices are going up, the dream of owning a home is available to a wide range of people. It’s not just limited to people with net worths. With the help of a dedicated Texas mortgage lender, people with average household incomes can also afford to buy a house.
This article isn’t focused on the maximum a lender would be willing to give you - but rather how much a $60,000 income could comfortably afford you.
What’s household income?
Definition: “household income” is the income received by all adult members of a household, before taxes, over the course of a year. This is also called gross household income.
Keep in mind that not all sources of income necessarily count toward mortgage approval.
Sources of household income may include:
Wages, salary, commissions, or tips from employment
Benefits from a retirement or pension plan
Social security retirement benefits
Investments, such as stocks or real estate
According to the Federal Reserve, the median household income in Texas was $67,444 in 2019, the most recent year for which thorough data are available.
Qualifying for a Mortgage with a $60K Income
Let’s imagine a family of three, the “Smiths,” with a total annual household income of $60,000. Their combined income will help them qualify for a mortgage.
Marty works in construction and makes $35,000/year.
Terry works in a department store and makes $25,000/year.
To keep matters simple, let’s assume the Smiths have no other regular sources of income such as investment income or commissions. They are W2 employees receiving paychecks on a bimonthly basis.
The lender will look at the Smiths’ debt as a percentage of their annual household income. This is known as the debt-to-income (DTI) ratio.
A healthy DTI may be around 40%. That means 40% of your income goes toward all recurring debts - including your mortgage. It’s possible to qualify for a mortgage with a DTI higher than 40%, usually by just a few percentage points.
In the Smiths’ case, they’d want to aim for a maximum of $24,000 of recurring debt each year. This could include student loans, credit card debt, car loans, payday loans, and of course, your mortgage.
Here’s what the Smiths pay toward debt each month:
Student loans: $400
Auto loans: $150
Credit cards: $150
Total monthly recurring debt: $700
» READ MORE: Can I Still Buy a Home with Student Debt?
Budgeting for a Mortgage
Good news! The Smiths could afford $1,300 more for their mortgage before they hit 40% DTI.
A $215,000 mortgage is within reason for their budget if they can put down $10,000. Here are some details on this example mortgage for the Smiths:
$215,000 home price
$10,000 down payment (4.65% of their home price)
$853 toward principal and interest
$110/mo homeowner’s insurance
$142/mo toward property taxes
$0/mo toward HOA fees
If they didn’t have the ability to make a down payment, they could still afford to buy a home. The home’s price would just be adjusted down by $10K - and they’d need to qualify for a zero-down mortgage.
» READ MORE: Zero Down FHA Home Purchase
» READ MORE: Zero Down USDA Home Purchase
Is there any breathing room left in the budget?
With a $1,300 mortgage and $700/month toward other types of debt, the Smiths would likely be left with $1,650 per month.
A married couple may pay about 22% in federal income taxes.
Health insurance may be $250 per month.
The leftover cash could go toward their savings “nest egg”, retirement funds, future childrens’ college funds, home renovations, or anything else they’d like to spend on. Not bad!
See how much you qualify for!
Buying a home may seem tough - but the Smith’s example shows it’s not as far out of reach as many first-time buyers may think.
Your first step is to get pre-approved. It’s free - and easy! Get started right here on our website, with the mortgage lender Texans trust.