Home Buying

How Much House Can I Afford on $100,000 Salary?

How Much House Can I Afford on $100,000 Salary?
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  • Tvine
| Mar 17, 2023
Reviewed, Jun 6, 2023
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    Buying a home is one of the most significant investments you’ll make in your lifetime. As a Canadian, you may wonder if your $100k salary is enough to afford a home in today’s market. The answer to this question isn’t always straightforward, as several factors contribute to the cost of homeownership, including location, mortgage rates, and other fees. 

    We’ll explore how to calculate your home affordability based on your salary, monthly payment, and fees. We’ll also discuss the 30% rule and share tips on finding a home within your price range, so you can make informed decisions about homeownership on a $100k salary.


    Key Highlights

    • How much home you can afford on a 100k salary in Canada all depends on your financial situation, your mortgage rate, and where you’re planning to buy a home.
    • Always consider the 30% rule before you apply for a mortgage because you should never be spending more than 30% of your income on housing costs.
    • To find a home within your price range and considering your salary, always consult a mortgage expert and use a mortgage calculator.

    Are you a first-time buyer?

    Is a $100k Salary Enough to Buy a Home? 

    Yes, given the right circumstances, the right home, and your financial situation, a $100k salary should be enough to buy a home in Canada. The cost of living and housing prices vary depending on where you live in Canada, so it’s important to keep that in mind when considering whether you can afford to buy a home on a $100k salary.

    In some cities, such as Toronto and Vancouver, housing prices can be quite high, which may make it difficult to purchase a home on a $100k salary. However, in other areas, such as smaller cities or rural communities, it may be more feasible to purchase a home on a $100k salary.

    Another factor to consider is your lifestyle. If you have significant expenses such as car payments, student loans, or credit card debt, you may find it more challenging to afford a home. High debt-to-income ratio can make it difficult to qualify for a mortgage or make your monthly mortgage payments.

    If you find yourself in a high debt-to-income ratio situation, consider opting for a townhouse or a condo instead of a detached house, which could be more affordable. Similarly, you may choose to buy a fixer-upper instead of a move-in-ready home, which may require less upfront cash.

    Additionally, you’ll need to consider other expenses associated with homeownership, such as property taxes, homeowner’s insurance, and home maintenance costs. These costs can vary depending on where you live, the size of your home, and the type of home you buy.

    Annual Income $100K
    Property Price $500K
    Mortgage Amount $400K
    Down Payment 20%
    Amortization 30 years
    Qualification Rate 5.39% + 2% = 7.39%
    Heat Cost (monthly) $100
    Property Tax (1%) $5K

    How to Calculate Home Affordability with Your Salary, Monthly Payment & Fees

    To determine how much home you can afford with a $100k salary, you’ll need to consider a few factors. The first is your debt-to-income ratio, which is the percentage of your monthly income that goes toward debt payments, including your mortgage payment.

    To calculate your debt-to-income ratio, add up all of your monthly debt payments, including credit card payments, car loans, and student loans, and divide that number by your monthly gross income. If your debt-to-income ratio is higher than 43%, you may have trouble qualifying for a mortgage.

    Next, you’ll need to calculate your monthly mortgage payment. This will depend on several factors, including the price of the home, the interest rate on the mortgage, and the length of the loan. You can use an online mortgage calculator to estimate your monthly payment.

    Finally, you’ll need to factor in other fees associated with buying a home, such as closing costs, property taxes, and homeowner’s insurance. These costs can vary depending on where you live and the price of the home.

    And don’t forget about nesto’s awesome mortgage calculators to help make these daunting calculations easy for you!

    The 30% Rule

    The 30% rule is a general guideline that suggests you should spend no more than 30% of your gross monthly income on housing costs. This includes your mortgage payment, property taxes, and homeowner’s insurance. This rule can help you determine whether you can afford to buy a home on a $100k salary.

    For example, if your gross monthly income is over $8,000, you should aim to spend no more than $2,500 per month on housing costs. This would include your mortgage payment, property taxes, and homeowner’s insurance.

    How Much Home Can You Afford with a $100k Salary

    Let’s assume you’re considering buying a home with a purchase price of $500,000.

    If you have savings for a 20% down payment, you would need to finance the remaining $400,000. Let’s say you qualify for a 25-year mortgage term with an interest rate of 3%, your monthly mortgage payment would be $1,897. Using the 30% rule, you could afford a home with a monthly payment of $2,500 or less. 

    So, with a $100k salary, savings for a 20% down payment, and a 3% interest rate, you could afford a home with a purchase price of up to $625,000 ($525,000 mortgage loan).

    However, if you do not have savings for a 20% down payment, you may need to pay for mortgage default insurance, which can add to your monthly mortgage payment. 

    In this case, let’s assume you have a 5% down payment and will need to pay for mortgage default insurance, which costs approximately 4% of the mortgage amount. So, your total mortgage loan would be $475,000 ($450,000 mortgage loan + $18,000 for insurance premium) with a monthly mortgage payment of $2,267. Using the 30% rule, you could afford a home with a monthly payment of $3,000 or less. So, with a $100k salary, no savings for a down payment, and a 3% interest rate, you could afford a home with a purchase price of up to $575,000 ($475,000 mortgage loan).

    It’s important to note that these calculations are based on several assumptions, and the actual amount you can afford may vary depending on your specific situation. It’s recommended to consult with a financial advisor or mortgage broker to determine how much home you can afford based on your unique circumstances.

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    FAQ

    What is the average salary in Canada?

    As of 2022, the average salary in Canada is around $60,000 per year. However, this can vary significantly based on a person’s job, industry, experience, and location.

    Can I afford a 400k house on a 100k salary?

    Assuming your expenses and financial situation are reasonable, you may be able to afford a $400k house on a $100k salary, provided that you have a solid credit history and can secure a mortgage loan with a favorable interest rate.

    How much is a down payment on a 400k house?

    A conventional mortgage typically requires a down payment of at least 5% of the purchase price. For a $400,000 house, a 5% down payment would be $20,000.

    However, a larger down payment can help you qualify for a lower interest rate and reduce your monthly mortgage payments. 

    For example, a 20% down payment on a $400,000 house would be $80,000, and this would allow you to avoid paying for mortgage default insurance, which is required for down payments less than 20%.

    Final Thoughts – Tips on Finding a Home Within Your Price Range

    If you’re looking to buy a home on a $100k salary, there are several things you can do that can help you find a home within your price range.

    For example, you can look for homes in less expensive areas or neighborhoods. Housing prices can vary significantly depending on where you live, so consider looking for homes in areas that are more affordable. Perhaps you can consider living outside of major cities to find better, more affordable places to live. You can also consider purchasing a smaller home or a fixer-upper. Smaller homes and homes that need some work may be more affordable than larger, move-in ready homes.

    It’s essential to get pre-approved for a mortgage. This will give you a better idea of how much you can afford to spend on a home and can help you avoid falling in love with a home that is outside of your price range. Work with a real estate agent who understands your budget and can help you find homes within your price range.


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