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If you earn at least $120,000 a year, you may be making enough to afford a $350,000 mortgage. But the amount lenders ultimately determine you can borrow will also depend on several other variables, including how much debt you have and your credit score.

Read on for a look at how much income may be needed to qualify for a $350,000 mortgage, how income fits into the overall mortgage equation, and how lenders typically decide how much mortgage a homebuyer can manage.

What Income Is Needed to Get a $350,000 Mortgage?

The home mortgage loan you can qualify for typically depends on how much the lender believes you can reliably pay back — and you can expect the loan company to run your financials through several different calculations to come up with that amount.

Home buyers tend to think the amount they’ll be approved for when they apply for a mortgage will be based mostly on their household income. But lenders may consider other important factors when deciding how much someone can borrow, including:

Reliability of Income

Yes, lenders will look at how much you earn to help determine if you can afford the monthly payments on the amount you hope to borrow. But they’ll also want to know how reliable that income is, so you may be asked how long you’ve had your job — or your business if you’re self-employed. Want to get an idea of where you stand before you apply for a mortgage? An online home affordability calculator can help you estimate if your income is high enough to afford a $350,000 loan.

Creditworthiness

Lenders also will check your credit score and credit reports to ensure you have a history of being financially responsible and paying your bills on time.

Down Payment Amount

Contrary to what many buyers believe, a 20% down payment isn’t required to get a home loan. First-time homebuyers may be able to put as little as 3% down — or even less, depending on the type of mortgage you plan to get. A larger down payment can help you lower your monthly payments, however. And it can show lenders that you’re serious about your investment.

Debt-to-Income (DTI) Ratio

You also can expect lenders to look at your existing monthly debts (credit cards, student loans, car payments, etc.) to assess whether you’ll be able to manage all those payments as well as a mortgage on your current income. The calculation used to compare your monthly debt payments with your monthly gross income is called your debt-to-income ratio (DTI = monthly debts ÷ gross monthly income).

What Is a Good Debt-to-Income Ratio?

The Consumer Financial Protection Bureau (CFPB) recommends that homeowners work toward maintaining a DTI ratio of 36% or less, and that’s the number mortgage lenders generally look for, as well. But some lenders may accept a DTI ratio of up to 43% — or even higher if the borrower can meet other criteria on certain types of loans.

What Other Factors Are Mortgage Lenders Looking For?

Besides your DTI, here are a few other basic formulas mortgage lenders — and you — may use to estimate how much you might be able to afford on your income.

The 28/36 Rule

The 28/36 rule combines two factors that lenders typically look at to determine how much mortgage you can afford: income and debt. The first number sets a limit of 28% of gross income as a home buyer’s maximum total mortgage payment, including principal, interest, taxes, and insurance. The second number limits the mortgage payment plus any other debts to no more than 36% of gross income.

For example: If your gross annual income is $120,000, that’s $10,000 per month. Using the 28/36 rule, that means you could aim for a monthly mortgage payment of about $2,800 — as long as your total monthly debt (including car payments, credit cards, etc.) isn’t more than $3,600.

The 35/45 Model

Another calculation lenders might look at is the 35/45 method, which recommends spending no more than 35% of your gross income on your mortgage and debt, and no more than 45% of your after-tax income on your mortgage and debt.

For example: Let’s say your gross monthly income is $10,000 and your after-tax income is about $8,000. In this scenario, you might spend around $3,500 to $3,600 per month on your debt payments and mortgage combined. This calculation allows for a larger mortgage payment if you aren’t carrying a lot of debt.

The 25% After-Tax Rule

If you’re nervous about keeping up with your payments, this method will give you a more conservative number to work with. With this calculation, your target is to spend no more than 25% of your after-tax income on your mortgage.

For example: If you make $8,000 a month after taxes, you might plan to spend $2,000 on your mortgage payments.

Keep in mind that these equations can only give you a rough idea of how much you’ll be able to borrow. When you want to be more certain about the overall price tag and monthly payments you can afford, it may help to go through the mortgage preapproval process.

What Determines How Much House You Can Afford?

Here’s something else to think about when determining how much income is needed for a $350,000 mortgage: A house payment generally isn’t limited to just principal and interest. And the extra costs that may be tacked on every month can add up fast. The costs covered by a monthly loan payment can include:

Principal

Principal is the original amount borrowed to buy the home. Each month, a portion of your payment will go toward paying down this amount.

Interest

Interest is the money you pay to the lender each month for giving you the loan. The interest rate you pay can be influenced by personal factors (such as the loan length you choose, your credit score, and your income) as well as general economic and market factors.

Homeowners Insurance

The cost of homeowners insurance (coverage that protects your home and other assets against various risks), also may be rolled into your monthly mortgage payment. Your lender will pay the premium when it’s due.

Mortgage Insurance

Depending on the type of loan you have and the amount you put down on your home, you may be required to carry private mortgage insurance (PMI) or some other type of mortgage insurance policy. This insurance is designed to protect the mortgage lender if a borrower can’t make the agreed upon loan payments.

Property Taxes

A portion of your monthly mortgage payment will also go toward the property taxes you’ll need to pay your local government.

Recommended: Home Loan Help Center

$350,000 Mortgage Breakdown Examples

The monthly payment on a $350,000 mortgage can vary based on several factors, including the length of the loan (usually 15, 20, or 30 years), the interest rate, and other costs. A mortgage calculator can help you get an idea of what your payments might look like. Here are some examples of how payments for a $350,000 mortgage might break down.

30-Year Loan at 6.00% Fixed Interest Rate

Total Payment: $2,801
Principal and Interest: $2,098
Other Costs (estimated PMI, homeowners insurance, and property taxes): $703

15-Year Loan at 6.00% Fixed Interest Rate

Total Payment: $3,657
Principal and Interest: $2,954
Other Costs (estimated PMI, homeowners insurance, and property taxes): $703

30-Year Loan at 7.00% Fixed Interest Rate

Total Payment: $3,032
Principal and Interest: $2,329
Other Costs (estimated PMI, homeowners insurance, and property taxes): $703

15-Year Loan at 7.00% Fixed Interest Rate

Total Payment: $3,849
Principal and Interest: $3,146
Other Costs (estimated PMI, homeowners insurance, and property taxes): $703

Pros and Cons of a $350,000 Mortgage

According to Redfin, the median sale price in the U.S. in April 2024 was $432,903 — which means finding a home with a $350,000 mortgage might be a challenge, depending on where you live. But if you can manage it — by searching for a lower-cost home or putting more money down — you could benefit from lower monthly payments. And depending on your income and other factors, it may be easier to qualify for a mortgage in this amount than for a larger loan.

Another plus: You’d be getting your foot in the door of homeownership, and that can mean building equity for the future.

Recommended: Best Affordable Places to Live in the U.S.

How Much Will You Need for a Down Payment?

A down payment typically ranges from 3% to 20% of the purchase price. The amount you’ll be required to put down may vary based on the type of mortgage loan you get.

Can You Buy a $350,000 Home with No Money Down?

You may be able to get a $350,000 mortgage with a 0% down payment if you can qualify for a government-backed loan from the U.S. Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA). These loans are insured by the federal government — which means the government will help pay back the lender if the borrower defaults on the loan.

Not all lenders offer these programs, and borrowers must meet specific requirements to qualify for a USDA or VA loan. But if you think you may be eligible, this could be an option that’s worth looking into.

Can You Buy a $350,000 Home with a Small Down Payment?

Some private lenders will accept as little as 3% down on a conventional loan — so don’t feel as though you have to come up with 20% down before you can pursue homeownership. You might want to check out the requirements for a government-backed FHA loan, which also allows borrowers to make a small down payment. Or you may be able to find a state or local program that offers down-payment assistance.

Is a $350,000 Mortgage with No Down Payment a Good Idea?

Coming up with even a small down payment can be a hurdle when it comes to homeownership — especially for first-time homebuyers — and the thought of skipping that step can be appealing. Avoiding a down payment may help you get into a home faster or allow you to hold onto your savings for renovations, an emergency fund, or other financial goals.

It’s important to keep in mind, though, that without a down payment it can take longer to build up equity in your home. And because you’re borrowing more money, you also could end up paying more interest over the life of the loan. Also, although you won’t have to pay for mortgage insurance with a no-down-payment government-backed loan, you can expect to pay an upfront funding fee for a VA loan and an upfront and annual guarantee fee for a USDA mortgage.

A mortgage professional can help you evaluate the different types of mortgage loans and determine the best move for your individual circumstances.

What I\if You Can’t Afford a $350,000 Mortgage Even With No Down Payment?

Here are a few steps to consider if it turns out you can’t afford the payments on a $350,000 mortgage:

Pay Off Debt

If your DTI ratio needs work, you may want to press pause on your home search and focus on paying down recurring debts like credit cards, car payments, or a personal loan. This could allow you to put more of your monthly income toward your mortgage payments.

Build Up Your Credit

Checking your credit reports can give you an idea of what lenders might see when they evaluate your credit. If there are any errors, you can take steps to get them fixed. And if you see something negative in your reports, you can work on doing better. If you use a credit-score monitoring service, you may already know what your credit score is and if it needs a boost. Conventional lenders typically look for a minimum score of 620 to 640.

Start Budgeting

Creating a budget and trimming some expenses could help you reach your debt-payment and savings goals. Remember: If you can come up with a bigger down payment, you may be able to borrow less and keep your monthly payments to a more reasonable amount.

Alternatives to Conventional Mortgage Loans

If you can’t qualify for a conventional mortgage loan, you may have some alternatives to consider. Here are a few potential options:

Look into First-time Homebuyer Programs

As mentioned above, you may qualify for a federal, state, or local first-time homebuyer program that can help lower your down payment, closing costs, and other expenses. There may be limits on the type of home you can buy or a cap on the home’s cost. But you might find it’s worth doing some research, or asking a mortgage professional, to see if you’re eligible and could benefit.

Rent-to-Own

Another option may be to enter into an agreement to rent-to-own a home. With this type of arrangement, you start out renting, but the landlord agrees to credit a portion of your monthly payment toward purchasing the home. This can be a good way to start working toward homeownership if you can’t qualify for a mortgage. But it’s important to understand the downsides of the deal — including that you might lose money if you change your mind about buying the home, or if the landlord has second thoughts about selling.

Owner Financing

With owner financing, the person who’s selling the home may serve as the lender for all or part of the purchase price. Just as with a rent-to-own home, there are risks to this kind of agreement, but it can make homeownership possible if a traditional loan isn’t available.

Mortgage Tips

No matter how much you plan to borrow, buying a home is a big step. Here are a few things you may want to do to prepare:

Work Out Your Housing Budget

Remember, your housing costs won’t be limited to principal and interest. It’s important to determine how much you might pay for insurance, taxes, HOA dues, maintenance, and other expenses before you make the leap to homeownership.

Find the Mortgage That Best Suits Your Needs

This may include deciding whether you want a:

•   fixed vs. variable interest rate

•   conventional vs. government-backed loan

•   shorter vs. longer term loan

Get Preapproved

Going through the mortgage preapproval process with a lender can give you a better idea of how much you can afford to spend on a home. And having preapproval may give you an edge over other house hunters in a tight market.

The Takeaway

Obtaining a mortgage is just one of many steps in the homebuying process, but it’s important to get it right. Taking the time to do some research and to think about the total picture of your finances and monthly expenses could keep you from getting in over your head — or locked into a loan that isn’t a good fit.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much income do you need to qualify for a $350,000 mortgage?

If you make at least $120,000 a year, you may be able to manage the payments on a $350,000 mortgage, depending on how much debt you’re carrying and other variables.

Can I afford a $350,000 house on a $70,000 salary?

If you have enough saved for a large down payment and/or you’re carrying little or no debt, you might be able to afford a $350,000 house on a $70,000 salary, but it could be an uncomfortable squeeze to make the monthly payments.

Can I afford a $350,000 house on a $60,000 salary?

If you can afford a very large down payment, you may be able to afford a $350,000 house on a $60,000 salary, but without other sources of income beyond your salary, getting a mortgage and keeping up with your monthly payments could be difficult.

Photo credit: iStock/zamrznutitonovi

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

SOHL-Q224-1906790-V1

Many homebuyers swimming in the pool of new mortgage terminology may wonder how mortgage principal differs from their mortgage payment. Simply put, your mortgage principal is the amount of money you borrowed from your mortgage lender.

Knowing how mortgage principal works and how you can pay it off more quickly than the average homeowner could save you a lot of money over the life of the loan. Here’s what you need to know about paying off the principal on a mortgage.

Mortgage Principal Definition

Mortgage principal is the original amount that you borrowed to pay for your home. It is not the amount you paid for your home; nor is it the amount of your monthly mortgage payment.

Each month when you make a payment on your mortgage loan, a portion goes toward the original amount you borrowed, a portion goes toward the interest payment, and some goes into your escrow account, if you have one, to pay for taxes and insurance.

Your mortgage principal balance will change over the life of your loan as you pay it down with your monthly mortgage payment, as well as any extra payments. Your equity will increase while you’re paying down the principal on your mortgage.

Mortgage Principal vs Mortgage Interest

Your mortgage payment consists of both mortgage principal and interest. Mortgage principal is the amount borrowed. Mortgage interest is the lending charge for borrowing the mortgage principal. Both are included in your monthly mortgage payment, though you likely won’t see a breakdown of how much of your monthly mortgage payment goes to principal vs. interest.

When you start paying down principal, the mortgage amortization schedule will show that most of your payment will go toward interest rather than principal.

Hover your cursor over the amortization chart of this mortgage calculator to get an idea of how a given loan might be amortized over time if no extra payments were made.

Mortgage Principal vs Total Monthly Payment

Your monthly payment is divided into parts by your mortgage servicer and sent to the correct entities. It includes principal plus interest.

Fees and Expenses Included in the Monthly Payment

Your monthly payment isn’t just made up of principal and interest. Most borrowers are also paying bits of property taxes and homeowners insurance each month, and some pay mortgage insurance. In the industry, this is often referred to as PITI, for principal, interest, taxes, and insurance.

A mortgage statement will break all of this down and show any late fees.

Among the many mortgage questions you might have for a lender, one is whether you’ll need an escrow account for taxes and insurance or whether you can pay those expenses in lump sums on your own when they’re due.

In the world of government home loans, FHA and USDA loans require an escrow account, and lenders usually require one for VA-backed loans.

Conventional mortgages typically require an escrow account if you borrow more than 80% of the property’s value. If you live in a flood zone and are required to have flood insurance, an escrow account may be mandatory.

Does the Monthly Principal Payment Change?

With a fixed-rate mortgage, payments stay the same for the loan term, but the amount that goes to your mortgage principal will change every month. An amortization schedule designates a greater portion of your monthly mortgage payment toward interest in the beginning. Over time, the amount that goes toward your principal will increase and the amount you’re paying toward interest will decrease.

Adjustable-rate mortgages (ARMs) are more complicated. Most are hybrids: They have an initial fixed period that’s followed by an adjustable period. They are also usually based on a 30-year amortization, but most ARM borrowers are interested in the short-term benefit — the initial interest rate discount — not principal reduction.

If you take out an ARM and keep it, you could end up owing more money than you borrowed, even if you make all payments on time.

Understanding mortgages and amortization schedules can be a lot, even for those who aren’t novices. A home loan help center offers a wealth of information on this and other topics.

What Happens When Extra Payments Are Made Toward Mortgage Principal?

Making extra payments toward principal will allow you to pay off your mortgage early and will decrease your interest costs, sometimes by an astounding amount.

If you make extra payments, you may want to contact your mortgage servicer or notate the money to make sure it is applied to principal instead of the next month’s payment.

Could you face a prepayment penalty? Conforming mortgages signed on or after January 10, 2014, cannot carry one. Nor can FHA, USDA, or VA loans. If you’re not sure whether your mortgage has a prepayment penalty, check your loan documents or call your lender or mortgage servicer.

Keeping Track of Your Mortgage Principal and Interest

The easiest way to keep track of your mortgage principal and interest is to look at your mortgage statements every month. The mortgage servicer will send you a statement with the amount you paid and how much of your principal was reduced each month. If you have an online account, you can see the numbers there.

How to Pay Off Mortgage Principal

Paying off the mortgage principal is done by making extra payments. Because the amortization schedule is set by the lender, a high percentage of your monthly payment goes toward interest in the early years of your loan.

When you make extra payments or increase the amount you pay each month (even by just a little bit), you’ll start to pay down the principal instead of paying the lender interest.

It pays to thoroughly understand the different types of mortgages that are out there.

And if you’re mortgage hunting, you’ll want to shop for rates and get mortgage preapproval.

The Takeaway

Knowing exactly how mortgage principal, interest, and amortization schedules work can be a powerful tool that can help you pay off your mortgage principal faster and save you a lot of money on interest in the process.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

What is the mortgage principal amount?

The mortgage principal is the amount you borrow from a mortgage lender that you must pay back. It is not the same as your mortgage payment. Your mortgage payment will include both principal and interest as well as any escrow payments you need to make.

How do you pay off your mortgage principal?

You can pay off your mortgage principal early by paying more than your mortgage payment. Since your mortgage payment is made up of principal and interest, any extra that you pay can be taken directly off the principal. If you never make extra payments, you’ll take the full loan term to pay off your mortgage.

Is it advisable to pay extra principal on a mortgage?

Paying extra on the principal will allow you to build equity, pay off the mortgage faster, and lower your costs on interest. Whether or not you can fit it in your budget or if you believe there is a better use for your money is a personal decision.

What is the difference between mortgage principal and interest?

Mortgage principal is the amount you borrow from a lender; interest is the amount the lender charges you for the principal.

Can the mortgage principal be reduced?

When you make extra payments or pay a lump sum, you can designate the extra amount to be applied to your mortgage principal. This will reduce your mortgage principal and your interest payments over time.

Photo credit: iStock/PeopleImages

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.
SOHL-Q224-1918217-V1

Homeownership continues to be a key part of the American dream. But exactly how much money do you need to make if living the dream means taking on a $175,000 mortgage? While the specific income figures required vary depending on other financial factors, a $175,000 mortgage will likely require an income in the neighborhood of $60,000.

There are several rules of thumb you can follow to get an estimate of how much mortgage you can afford. Let’s take a closer look.

Income Needed for a $175,000 Mortgage

Unfortunately there is not a simple answer to the question of how much income you need to qualify for a mortgage. That’s because mortgage qualification involves a complex calculation that factors in other finance figures like your debt-to-income (DTI) ratio, how much money you have for a down payment, your credit score, and even your location.

However, there are generally accepted formulas that can help us get a ballpark income estimate, all other things being equal.

How Much Do You Need to Make to Get a $175K Mortgage?

That formula we were talking about states your housing payment should be about 30% of your gross income — that is, the amount you earn each month before taking out taxes and deductions. From here, we can do some reverse engineering. Using an online mortgage calculator, you can estimate the monthly payment on a $175,000 mortgage. (Along with the property’s total value and your projected down payment, you’ll also need to put in an estimated interest rate. Keep in mind that the rate you qualify for will depend on your credit score, and that baseline interest rates change regularly as the market fluctuates.)

Say you’re buying a $200,000 house with a $25,000 down payment, leading to your $175,000 mortgage. At an estimated 7% interest rate, your monthly mortgage loan payment would be around $1,170. When you add taxes, insurance, and private mortgage insurance (PMI), your total monthly payment will be around $1,600. For simplicity’s sake, we can multiply that total by three to find out an approximate minimum monthly gross income at which such a mortgage is affordable. When we do, we get $4,800, or about $58,000 in annual income.

Still, keep in mind that a home affordability calculator can provide only an estimate. Many other factors play into your actual monthly mortgage payment, including property taxes in your area, and your DTI ratio.

This last piece is a big enough deal in the world of home-lending that it’s worth taking some time to explore, so let’s do that now.

What Is a Good Debt-to-Income Ratio?

Your debt-to-income (DTI) ratio is the amount of debt you owe each month versus your available income. It’s calculated by dividing your monthly debt payments by your gross monthly income. For instance, if you earn $3,500 per month and pay $500 toward your car payment and $350 toward student loans, your DTI ratio would be calculated like so:

(500+350)/3,500 = 0.24, or a DTI of 24%

While each lender has its own specific qualifying criteria, generally speaking, a lower DTI is better. Most lenders will begin to disapprove applicants whose DTI hits 36% or so, though you may be able to get approved with a DTI of up to 50% in some cases. (Still, even if you can get approved, a higher DTI ratio likely means your housing payment will be more difficult to make each month.)

What Determines How Much House You Can Afford?

As we’ve seen already, there are lots of different factors that determine how much house you can afford. A few of those include:

•   Your income

•   Your DTI ratio

•   Your credit score

•   Your down payment

•   The cost of living in your location

What Mortgage Lenders Look For

While, again, each specific mortgage lender has its own qualifying criteria (and these may also shift depending on what kind of mortgage you’re applying for), some of the primary factors lenders look as an applicant goes through the mortgage preapproval process include:

•   Reliable and sufficient income

•   Favorable credit history and credit score

•   Sufficient existing assets, such as cash and investments

•   Reasonable levels of existing debt (DTI ratio)

$175,000 Mortgage Breakdown Examples

A little-understood characteristic of mortgages: Although each monthly payment is identical (in the case of a fixed-rate mortgage, at least), the proportional amount of each payment that goes toward interest varies over the life of the loan. Toward the beginning of your loan, the bulk of your monthly payment is going toward interest rather than principal, which helps ensure the lender gets paid for its services. This breakdown is known as the amortization of the loan, and it’s well worth looking up ahead of time so you understand exactly how much of your money is going where.

Looking up the amortization schedule ahead of time can also reveal how much you’ll pay in interest over the entire lifetime of the loan, which depends on your interest rate and loan term. Here are two examples of how the same $175,000 loan breaks down differently depending on these factors:

10-year fixed rate loan at 7.00%
Monthly payment: $2,032
Total paid over the life of the loan: $243,828
Total interest paid: $68,828

30-year fixed rate loan at 7.00%
Monthly payment: $1,164
Total paid over the life of the loan: $419,140
Total interest paid: $244,140

Pros and Cons of a $175,000 Mortgage

Like any decision in life, financial or otherwise, there are both drawbacks and benefits to consider when you’re contemplating taking out a $175,000 mortgage. Here are a few of them at a glance:

Pros

•   A $175,000 mortgage is substantially lower than the median sale price of homes in the United States as per the first quarter of 2024 ($420,800).

•   Although there’s no guarantee, homes do tend to appreciate over time, which means the debt may be worth it in the long run, even with interest.

•   Owning your own home offers stability and can help build generational wealth.

•   The interest on your housing payment may be tax deductible.

•   If you pay your mortgage on time each month, your credit score may improve.

Cons

•   Interest means you’ll likely pay far more than the home is worth today over the lifetime of the loan.

•   If you fall behind on your mortgage payments, you’re at risk of having your home go into foreclosure.

•   As a homeowner, you’ll be responsible for any and all maintenance and repairs your home requires.

•   Along with your mortgage, you’ll also need to pay property taxes, homeowners insurance, and other related costs.

How Much Will You Need for a Down Payment?

While a well-known rule of thumb states that homebuyers should save up a 20% down payment before they make a purchase, these days you can put down far less than that. For example, many conventional mortgages allow first-time borrowers to put down as little as 3%, which, for a $200,000 home purchase, adds up to $6,000. (A 20% down payment would be $40,000.)

However, keep in mind that a lower down payment means you’ll likely need to pay for PMI. This cost can add a few hundred dollars to your monthly payment, which can make it harder for some borrowers to make ends meet each month.

Is a $175K Mortgage With No Down Payment a Good Idea?

There are some programs, such as VA loans (from the U.S. Department of Veterans Affairs), that allow borrowers to take out a mortgage with no down payment at all. However, even if you qualify for such a loan, it’s important to consider its potential drawbacks before you agree.

Because a low- or no-down-payment mortgage may be seen as a riskier prospect to the lender, it may come at a higher interest rate — which could drive up how much you pay in total over the lifetime of the loan. It also means you’ll start out your homeownership journey with no equity in your house, meaning the value of your share of the ownership will build more slowly over time.

Still, these programs can help some borrowers buy a house far sooner than they might otherwise be able to, while keeping some funds freed up for other costs (including potential home maintenance and repair). In short, only you can decide if a no-down-payment mortgage is a good move for you, but be sure you’re making the decision with knowledge on your side.

Can’t Afford a $175K Mortgage With No Down Payment?

If you’re having trouble qualifying for a $175,000 mortgage, even without a down payment, there are some steps you can take to help get your ducks in a row — and make your homeownership dreams possible in the not-too-distant future.

Pay Off Debt

Given how important DTI is when it comes to qualifying mortgage applicants, paying off existing debt can be a huge boon toward getting your application approved — and it’ll also make paying your monthly mortgage a lot easier.

Look Into First-Time Homebuyer Programs

There are many first-time homebuyer programs out there that are specifically designed to help people whose financial histories may be a little shorter or spottier. For instance, depending on your income, your local government may offer low-cost down payment assistance loans, and you can also look into an FHA mortgage, which is backed by the Federal Housing Administration and can help those with lower credit scores get qualified.

Build Up Credit

While it’s possible to qualify for a home loan with a lower credit score, if you build it up, it’s a whole lot easier — and you’ll likely get a better interest rate, which will lower your overall costs. Some reliable ways to build your credit include making on-time payments and lowering your overall revolving balance.

Start Budgeting

Budgeting is the best way to meet just about any financial goal — because when you do, you’ve got a blueprint for where your money is going. If you’ve yet to create a budget, do so, and look for areas where you might be able to make cuts that could go toward your new-home savings fund.

Alternatives to Conventional Mortgage Loans

While conventional mortgages are available from many different lenders, they’re not the only ones on the market — or necessarily the best for all borrowers. You may also qualify for different types of mortgage loans, such as:

•   FHA loans, which are designed specifically for first-time home buyers

•   VA loans, which are for service members, veterans, and qualifying surviving family members

•   U.S. Department of Agriculture loans, which help households under certain income thresholds purchase homes in eligible rural areas

Mortgage Tips

No matter which mortgage program you go with, the best tip is to shop around. Different lenders may be able to qualify you for different rates, and as we’ve seen above, interest can really add up. Even a fraction of a percentage difference could translate to thousands of dollars over a 30-year loan! Remember that if you can’t qualify for the lowest rate initially, you may find that you can do a mortgage refinance in the future.

The Takeaway

As we’ve seen, there’s no one simple answer to the question, “How much money do I need to make to take out a $175,000 mortgage?” Rather, the mortgage qualification process is a more complex and holistic process that involves your debt level, income, credit history, and many other factors. However, with the many different programs available for first-time homebuyers, there’s a good chance you may be able to find a way to qualify.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How much mortgage can I afford with a $175,000 income?

If you’re earning $175,000 per year, that’s about $14,500 per month. Your housing payment should be no more than 30% of your monthly gross income — which calculates to $4,350 per month. With an income like this, you can probably afford a mortgage around $550,000 depending on your other debts and how much you have available for a down payment.

How much is a $175,000 mortgage per month?

Your exact mortgage payment will depend on many factors, including your interest rate. Borrow $175,000 with a 7% interest rate and a 30-year term, and the monthly payment will be around $1,164, excluding taxes and insurance.

Is $2,000 a lot for a mortgage?

Whether $2,000 per month is a lot to pay on a mortgage depends on how much you’re earning and how much of a squeeze you feel when you make that monthly payment. Most people would need to be earning about $6,000 per month or $72,000 per year — with little to no other debts — for a $2,000 mortgage payment to feel comfortable.

Photo credit: iStock/FG Trade

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
^†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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A mortgage commitment letter is a step beyond prequalification and preapproval and could give a homebuyer an edge in a competitive market. It lays out the loan details and indicates that a buyer has an agreement for a mortgage.

But who should obtain a mortgage commitment letter and when? Let’s take a look at those answers and more.

What Is a Mortgage Commitment Letter?

A mortgage commitment letter — conditional or final — is a step closer to finalizing a mortgage but short of “cleared to close.” The letter signals to the seller that the buyer and a chosen financial institution have forged an agreement.

Buyers may seek a conditional mortgage commitment letter when they’re house hunting, and a final commitment letter when they’re ready to make an offer on a specific home.

In both types of loan commitments, the lender outlines the terms of the mortgage.

Recommended: Buying in a Seller’s Market With a Low Down Payment

Types of Mortgage Loan Approvals

In the mortgage loan process, buyers will hear “approval” thrown around a lot. But not all approvals are built equally, and each type signifies a different part of the process.

Prequalification

Getting prequalified is often an early step for buyers in the home search. It’s quick, can be done online, and doesn’t require a hard credit inquiry.

To get prequalified, buyers provide financial details, including income, debt, and assets, but no documentation, so this step serves as an estimate of how much home they can afford.

Prequalification can help buyers create a realistic budget, but the amount, interest rate, and loan program might change as the lender gets more information.

Preapproval

Preapproval is slightly more complicated, requiring a hard credit inquiry and documentation from the buyer. Lenders may ask for the following:

•   Identification

•   Recent pay stubs

•   W-2 statements

•   Tax returns

•   Activity from checking, savings, and investment accounts

•   Residential history

Armed with this information, a lender will give buyers a specific amount they’ll likely qualify for.

Preapproval also shows sellers that a buyer is serious about a home, as it means a lender is willing to approve them for a mortgage.

Conditional vs Final Commitment

Prequalification and preapproval can be important steps during the home search. But especially in a seller’s market and in certain cities, the mortgage commitment letter can become an important tool.

While a mortgage loan commitment letter can show a seller that the buyer is serious, not all letters are the same.

A conditional mortgage approval letter, the most common type, means that the lender will approve buyers as long as they meet certain conditions.

Conditions could include:

•   No change to the buyer’s finances before the closing date

•   Proof of funds to cover the down payment and closing costs

•   Passing of a home inspection

•   An appraisal

•   Proof of homeowners insurance

•   No liens or other problems with the property title

A final commitment letter means the lender has unconditionally approved the buyer for a loan to purchase a home. However, this doesn’t mean the buyer is guaranteed a loan; it just means the lender is ready to approve the mortgage.

Having a mortgage commitment letter in hand is a good way to ensure that nothing will go wrong during underwriting.

Recommended: See Local Housing Market Trends by City

How to Know If You Need a Mortgage Commitment Letter

Buyers don’t need to provide a mortgage commitment letter to a seller. Still, that extra step beyond preapproval indicates how serious they are about a property.

Since it may require a little extra work, it shows sellers that a buyer is less likely to back out, especially due to financing issues.

A mortgage commitment letter could convince a seller to take a buyer more seriously in a seller’s market. And it could calm the nerves of buyers who face home-buying angst, including the challenge of covering a down payment and closing costs (even if they plan to roll closing costs into the loan).

How to Get a Mortgage Commitment Letter

Getting a mortgage commitment letter might sound like a hassle during an already stressful home-buying process, but doing so could save buyers time and provide a sense of relief as they creep closer to closing.

First off, buyers will need to be preapproved. If they have chosen a home, once under contract, their lender or underwriter will want more information, which may include:

•   A gift letter if another party is helping with the down payment

•   Employment verification

•   Explanation of any late payments

•   Proof of debts paid and settled

From there, it could be a back-and-forth between the lender and buyer, with the lender asking for clarification or additional documentation. Common issues that arise include:

•   Tax returns with errors or inconsistencies

•   Unexplained deposits into buyer bank accounts

•   Multiple late payments or collections on a credit report

•   Unclear pay stubs

At this point, the lender may grant a conditional commitment letter, with the caveat of additional information and an appraisal. If the buyer has an appraisal and meets lender expectations with documentation, they’re likely to get a final commitment.

Contents of a Commitment Letter

A commitment letter will vary from lender to lender but generally include the following details:

•   Loan amount

•   Loan number

•   What the loan is for

•   Mortgage loan term

•   Type of loan

•   Lender information

•   Expiration date of the commitment letter

What happens after the commitment letter? The lender and underwriter will continue to iron out the mortgage details, aiming for cleared-to-close status before the closing date on the property.

The Takeaway

A mortgage commitment letter is like a short engagement before the wedding: It signals an agreement before the real deal. Buyers in an active seller’s market might find a mortgage commitment letter advantageous.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

FAQ

How long does it take to get a mortgage commitment letter?

It typically takes 20 to 45 days to get a mortgage commitment letter. The average closing process takes 50 days.

Does a mortgage commitment letter expire?

Yes.

How long is a mortgage commitment letter valid?

Timing can vary by lender, but the length of commitment is typically 30 days.

Photo credit: iStock/MartinPrescott

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOHL-Q224-1917095-V1

You want to flip a house, but you don’t have enough money for a down payment — and your credit isn’t where it needs to be for a personal loan. Or, maybe you’re a small business owner who wants to own a piece of commercial real estate. People who are investing in real estate beyond their primary residence may consider a hard money loan as an option, especially if a traditional mortgage isn’t.

A hard money loan is a short-term loan commonly used by investors, such as house flippers or developers who renovate properties to sell. The loan typically uses the property as collateral. Hard money loans are usually funded by private lenders, individuals, or investor groups, rather than banks.

A hard money loan may make sense on paper, but because it typically has a shorter term than other types of loans and interest rates can be high, paying back the loan can be challenging. Defaulting on a hard money loan could mean losing the property.

What Is a Hard Money Personal Loan?

A hard money personal loan is a type of personal loan that uses collateral. While a mortgage is also a type of loan that uses property as collateral, a hard money loan is very different.

First of all, a hard money loan doesn’t come from a bank. It comes from a private lender, which may be a company or an individual. The loan will likely have higher interest rates and a shorter payback period than a traditional mortgage.

It can also be a much shorter process to be approved for a hard money loan. While a mortgage may take weeks for approval, it’s not atypical to have cash in hand within a few days of a hard money loan application.

A hard money loan also may be more lenient in terms of credit scores or assets than a traditional loan. This can be beneficial for people who are wanting to flip a house or buy an additional piece of property, who may not have enough assets on paper to be approved for a traditional mortgage, or who need a larger down payment than they have.

How Do Hard Money Personal Loans Work?

Hard money personal loans are often advertised to — and used as a tool for — house flippers, but other people may pursue a hard money personal loan as well.

Let’s say someone wants to buy a house to flip, or a piece of land to use as a rental property. They may still be building their credit, or they may not have enough money for a down payment. They may have been turned down for a mortgage, or they may not want to apply for a mortgage, knowing that it’s a time-intensive process and their finances might not be as strong on paper as they know the bank would like.

In this case, the person might turn to a hard money personal loan. Individuals, groups of investors, or private companies may specialize in offering hard money loans. Terms vary but are often less than one year, compared to 20 or more years for a mortgage. But the one constant: If you can’t pay back the loan, then you lose the collateral, which would be the property.

Other things to be aware of regarding a hard money personal loan: Interest rates may be high and the loan term is much shorter than a mortgage. This comes with a fair amount of risk.

Pros and Cons of Hard Money Personal Loans

As with any personal loan, it’s important to consider the pros and cons of the loan. It can also be a good idea to consider what-ifs, and how you might pay back the money if the original plan doesn’t work. Here, some pros and cons to think about before applying for a hard money personal loan.

Personal Loans Versus Hard Money Loans

The primary difference between an unsecured personal loan and a hard money loan is that a hard money loan is secured. Both are personal loans, but using collateral for a personal loan means the loan is secured.

Collateral can be anything of value. But in the case of a hard money loan, it’s in the form of property. A personal loan typically does not require collateral. If you were unable to pay back a personal loan, the lender could not take away your house, for example. Both types of personal loans have specific terms and conditions, and both can provide cash relatively quickly. However, many personal loans are backed by a bank or other financial institution.

Is a Hard Money Personal Loan Right For You?

Hard money personal loans may be an option for certain financial needs. But, as with any personal loan, it’s important to weigh the pros and cons, and consider what-ifs. Questions to ask may include:

•   What other avenues can I follow to raise the money I need?

•   What happens if I don’t pursue this loan?

•   If I do get this loan and plan to do a specific thing with it, what happens if that specific thing doesn’t happen the way I anticipated?

•   Can I afford this loan, including interest?

•   Could I afford this loan if my financial circumstances changed?

These questions can help you assess worst-case scenarios. You also may want to ask your potential lender any questions you have as well.

Recommended: Personal Loan Alternatives and Options

Hard Money Personal Loan Alternatives

There are potential alternatives to hard money personal loans. Some may require collateral, and others, like a personal loan, may not. Each comes with pros and cons. Your financial situation may also determine which loans you might be eligible for. If you’re building your credit, you may not have access to certain loans.

Credit Cards

If you’re purchasing land or property, you likely need cash. But for other purchases, using a credit card could be an option. If you don’t need a lump sum of money, using the line of credit that a credit card offers may work well for making periodic purchases.

However, credit cards may have high, variable interest rates. Plus, the more of your available credit you use, the higher your credit utilization ratio, which could impact your credit score.

Recommended: What Is A Personal Line of Credit & How Do You Get One?

Personal Loans

Can you buy land with a personal loan? You could. Generally, once you’re approved for a personal loan, you receive money in your account and can then use it for virtually any purpose. Some people use personal loans to pay for renovations or other home improvement projects.

But it could be challenging to get mortgage approval if you were planning on using a personal loan for a down payment, for example. A personal loan may affect mortgage eligibility.

Recommended: Do Personal Loans Affect Getting a Mortgage?

HELOC

A home equity line of credit (HELOC) is a type of revolving debt. For example, if you apply for a HELOC and are approved for $10,000, you can draw up to $10,000. Once that money is paid back, you can draw from it again for the set period of time defined in the terms of the loan.

A HELOC is a popular option for people who are doing home improvement projects. They may not need a lump sum of cash but may have ongoing expenses. Generally, interest rates on a HELOC are variable, not fixed.

Since a HELOC is a loan secured by the borrower’s home, there is a risk of losing the home if the loan is not repaid.

Recommended: How Do Home Equity Lines of Credit Work?

The Takeaway

For some people, hard money personal loans can allow them to realize their real estate goals. But hard money loans typically have high interest rates and short payback periods, which can make them risky. It can be a good idea to carefully weigh the pros and cons of a hard money loan.

A SoFi Personal Loan may be an alternative to consider. Since unsecured personal loans from SoFi do not require collateral, they could be a good option for those just entering the real estate market. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.

Photo credit: iStock/JLco – Julia Amaral

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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