Income needed for a $300k mortgage

The exact income needed for a mortgage depends on a wide variety of factors

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The homebuying process raises many questions for potential homeowners, and these questions often center on affordability. Knowing how much income it takes to afford a home, such as one with a $300,000 mortgage, will be important as you navigate through your purchasing options. Having clarity around the income requirements for a mortgage can help you determine what the impact will be on your monthly budget if you end up purchasing a home either over or under this amount.

Key insights

Using the 28% rule as a guideline, you would need an income of around $98,500 to afford a 30-year mortgage.

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The amount of monthly mortgage payments depends on multiple factors, including the down payment amount, interest rate and length of the loan.

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You can improve mortgage affordability by improving your credit score, lowering your debt obligations or increasing your income.

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How much do I need to make to afford a $300,000 mortgage?

If you’re trying to understand how much of a mortgage you can afford, then the 28% rule may be a helpful place to start. This general rule of thumb simply states you should spend no more than 28% of your gross monthly income on a mortgage payment.

However, this is a starting point and not a hard-and-fast rule. Each lender has its own requirements for income, debt-to-income ratios (how much debt you owe versus your monthly income) and other factors for loan approval. Your final monthly mortgage payment will depend on a combination of variables, like the length of the loan term, the interest rate, whether you have mortgage insurance, property taxes and homeowners insurance.

The amount of your down payment is another critical determining factor. This is the amount of cash you’ve saved up and can pay upfront towards the cost of the mortgage. The greater the amount you contribute, the less you’ll have to finance with a mortgage, which can lower the monthly payment.

Income needed for a $300,000 mortgage

Let's say you're purchasing a $375,000 home and put down 20%, taking out a $300,000, 30-year mortgage at a 7% interest rate. This puts the monthly payment at about $2,300, including property taxes and insurance.

You would spend an estimated $27,600 per year on total mortgage expenses. Using the 28% rule, you would need an income of $98,571 to afford a $300,000 mortgage.

» LEARN: Closing costs versus prepaids: what’s the difference?

Other requirements needed for a $300K mortgage

Lenders have varied requirements for loan approvals, but your credit history and income are two of the most critical considerations.

Debt-to-income ratio

Debt-to-income ratio, or DTI ratio, refers to the amount of debt you hold versus your monthly gross income. Lenders use the DTI ratio as a way of evaluating if you can afford a monthly mortgage payment on top of your other debt obligations. Lenders typically like to see a ratio of 36% or less, which means no more than 36% of your gross monthly income goes toward debt payments. However, it’s possible to still get approved if your number is above 36%.

You can calculate your DTI ratio by adding up all your monthly debt payments and dividing this total number by your monthly gross income. As an example calculation, say your monthly debts are as follows:

  • Monthly rent: $1,700
  • Auto loan: $600
  • Credit card minimum payment: $250
  • Total: $2,550

If your monthly gross income is $7,000, you divide $2,550 by $7,000, which equals 36.4%.

Credit score requirements

Both your credit score and credit history are vital factors lenders use during the loan approval process. Your credit report shows the lender whether you’re on time with payments and how well you’ve managed any money you’ve borrowed.

Having a higher credit score means you can qualify for a lower interest rate, which can save you thousands of dollars in interest over the life of a loan and may allow you to qualify for a mortgage with a slightly lower income. On the flip side, having a lower credit score increases your interest rate, which can impact the amount of a mortgage you can qualify for.

Other factors

While lenders put a heavy emphasis on income and credit history, other factors can impact a mortgage approval, too. One example is capital, or assets, which can include savings, investments, retirement accounts or almost any type of asset that can easily be converted to cash.

Collateral also plays a role in approval, and in the case of the mortgage, the collateral is the property itself. This means the lenders review the value of the property you’re purchasing through the appraisal process.

“Specific to purchasing a home, the buyer should understand that their personal financial and credit circumstances will dictate a majority of their mortgage approval,” explained Shmuel Shayowitz, president of Approved Funding, a direct lender based in River Edge, New Jersey.

“Your gross income compared to monthly expenses, your credit profile and your available funds are the three legs of the table of qualification. The last leg is the property itself, which an appraisal will be necessary to confirm the value is equal to the price being paid,”  said Shayowitz.

» MORE: What credit score is needed to buy a house?

Tips to improve mortgage approval

It may feel like a daunting task to get approval for a mortgage, but there are actionable steps you can take right away to help improve your odds. First, work on improving your credit score. This means paying all debts on time each month and paying down as much of an outstanding balance as possible.

It’s also a good idea to check your credit report for any errors that may be affecting your score. If you do find an error, you can dispute it with the credit bureaus online.

Since requirements vary by lender and loan type, you may improve your chances of approval by shopping around and comparing multiple lenders. Reading recent reviews, comparing interest rates and loan terms and searching for discounted points or reduced origination fees are all ways you can save money overall.

Another tip is to get a mortgage preapproval so you’re better prepared when shopping for a home. “I highly encourage potential home buyers to explore getting preapproved well before they begin the home search process,” said Shayowitz. “A good mortgage advisor can help guide and potentially advise any areas that might need improvement along the way, and help buyers be better situated for mortgage approval when they finally find a house.”

» MORE: Does mortgage preapproval affect your credit score?

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    How much is a $300K mortgage per month?

    The monthly payment for a $300,000 mortgage with a 7% interest rate is about $2,000 for principal and interest. With taxes and insurance, it is closer to $2,500. Keep in mind that the home’s location, property taxes, homeowners insurance, mortgage insurance and other factors like closing costs can significantly affect your monthly payments.

    Can I afford a $300K house on a $60K salary?

    It’s possible you can afford a $300,000 mortgage on a $60,000 salary, but ConsumerAffairs estimates you need about a salary of around $98,500 salary to comfortably afford a $300,000 mortgage with a 7% interest rate.

    What credit score is needed to buy a $300K house?

    It depends on the type of loan you’re applying for, but conventional loans typically require a minimum credit score of 620, while FHA loans may accept borrowers with credit scores as low as 500. A lower credit score doesn’t mean you can’t qualify for a mortgage, but having a higher score can lead to better loan terms, like a lower interest rate.

    Bottom line

    Taking into account the common rule that your monthly mortgage payment shouldn’t exceed 28% of your gross monthly income, ConsumerAffairs estimates you should have a minimum yearly income of about $98,500 to be able to afford a $300,000 mortgage with a 7% interest rate. Keep in mind that factors other than your income affect whether you will qualify for a mortgage. Shopping around and comparing multiple lending options can help you find the best mortgage option for your current financial situation.

    Article sources
    ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
    1. Federal Deposit Insurance Corporation, “How Much Mortgage Can I Afford?” Accessed April 2, 2024.
    2. Consumer Financial Protection Bureau, “How does my credit score affect my ability to get a mortgage loan?” Accessed April 2, 2024.
    3. Freddie Mac, “The 4 C's of Qualifying for a Mortgage.” Accessed April 2, 2024.
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