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If you’re trying to build your credit, you may encounter a bit of a Catch-22: You likely need a good credit history to successfully apply for credit. But how do you do that if you don’t have solid credit?

Fortunately, products like credit builder loans and secured credit cards can help you build a favorable credit profile if you’re still at the beginning of your journey. Deciding which of these financial products is best will depend on your immediate financial needs and how much cash you have available to put down for a security deposit.

What Is a Secured Credit Card?

When you apply for a credit card that’s secured, you’ll provide your basic demographic information along with a cash security deposit to the card issuer. This deposit will usually be at least $200 or $300 and could be more; say, $1,000 or $2,500.

Instead of setting a credit limit determined by your credit history, the issuer of a secured card requires a cash security deposit. The amount of your deposit is usually the same as your limit.

You can think of it this way: Rather than allowing you to borrow money, the credit issuer is essentially allowing you to spend money you already have. It may sound as if it doesn’t offer any benefit, but remember: This gives you the opportunity to build your credit.

How Secured Credit Cards Work

When you apply for a secured credit card, you’ll provide your basic demographic information along with a cash security deposit to the card issuer. This deposit will usually be at least $200 or $300 and could be more; say, $1,000 or $2,500.

The deposit amount will likely serve as your working credit limit, though you may want to use the card sparingly. Perhaps you swipe or tap it often enough to keep it open and for the credit bureaus to see your positive credit behavior, such as paying in full and on time each month.

Because the cash deposit works as collateral, lowering the risk for the card issuer, you may be able to successfully apply for a secured credit card with a lower credit score or possibly even no credit at all. The same issuer might even automatically review the account to see if it merits a switch to an unsecured card.

Secured Credit Card’s Effect on Credit

Secured credit cards offer you the opportunity to build positive credit history, since your balance, payments, and other information will be passed to the credit bureaus. And because the credit limits are generally lower, it is usually harder to fall into a serious debt spiral with a secured credit card than it is with an unsecured one.

Pros and Cons of Secured Credit Cards

Like any financial option, secured credit cards have both pros and cons to consider.

Pros of secured credit cards:

•   It’s a readily available way for those with poor credit or non-existent credit history to begin building their credit with a low cash deposit.

•   You gain the ability to use the funds immediately while still building credit over time.

•   You may gain some potential credit card benefits, such as fraud protection and credit card rewards, like cash back.

Cons of secured credit cards:

•   You must have the cash deposit available, and it can be in your best interest not to use the entire amount once you have the credit card. That means some of your money is tied up on the card.

•   Interest and penalties may apply if you aren’t able to keep your balance low or paid off in full each month.

•   Card issuers do still run a hard credit inquiry when you apply, which can negatively impact your credit in the short term.

Recommended: What Is the Average Credit Limit and How Can You Increase It?

What Are Credit Builder Loans?

Credit builder loans are another option for people looking to build their credit. They work a little differently than a traditional loan does. Rather than receiving the money you’ve applied for right away, you’ll get the money later, after you’ve repaid the full amount.

How Do Credit Builder Loans Work?

Applying for a credit builder loan is a lot like applying for any other unsecured or secured personal loan. You’ll provide a variety of information, including details about your existing monthly expenses and income, as part of the approval process. (The lender may or may not run a credit check or look into your banking history.)

These loans are typically for relatively small amounts of $300 to $1,000. The term is likely to be between six and 24 months; rates will vary.

If you’re approved, the bank will create a savings account or certificate of deposit (CD) in the amount of the loan. The money is held there rather than paid out to you, and you repay the debt over time. It’s only when you’ve successfully completed repayment that the money be disbursed to you (sometimes including accrued interest).

In this way, it’s kind of like an enforced savings plan: You could slowly put money away into a savings account yourself, but taking out a credit builder loan keeps you accountable.

Plus, your payments are reported to the credit bureaus, which means you have the opportunity to build your credit history and credit report in the meantime. Win-win!

Note: Credit builder loans may not be available at your financial institution. If that’s the case, check credit unions, CDFIs (Community Development Financial Institutions), and online lenders.

Credit Builder Loan’s Effect on Credit

The loan company will report your on-time payments to the credit bureaus, which can help you build your credit. This can make it a lot easier to take out other loans in the future.

Of course, if you fail to pay on time or default, a credit builder loan could have a negative effect on your credit.

Pros and Cons of Credit Builder Loans

Credit builder loans also have both positives and negatives to consider.

Pros of credit builder loans:

•   They are available to people with low or no credit.

•   They may not require a hard credit inquiry.

•   They can help people build credit without risking going into credit card debt.

Cons of Credit Builder loans:

•   You won’t have access to the funds until after you’ve paid the loan off. Credit builder loans might not be right for those who have immediate financial needs.

•   There may be a nonrefundable fee for taking out the loan.

•   These loans can be difficult to find.

Recommended: Breaking Down the Different Types of Credit Cards

Credit Builder Loans vs Secured Credit Cards

Which of these two credit-building options might be right for you? The answer depends on your circumstances, but this table might prove helpful in comparing the options.

Is a Secured Credit Card or Credit Builder Loan Right for You?

Depending on your specific financial circumstances, either of these products might be a valuable way to enhance or establish your credit. Both are relatively easy to access for those who lack solid financial histories. Although both require an up-front cash deposit, the deposit may only be a few hundred dollars.

If you need to use your money right away, a secured credit card may make more sense; you’ll be able to use your credit card to pay bills and cover other expenses.

A credit builder loan, on the other hand, ties up your money for a longer period of time, but comes with less risk of paying large amounts of interest on revolving debt.

The Takeaway

Credit builder loans and secured credit cards make it possible to build a favorable credit history. A credit builder loan may be a better option for those who have more cash available, whereas a secured credit card helps build credit while (responsibly) spending.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is the difference between a credit builder loan and a secured credit card?

A credit builder loan is a loan that disburses money to the borrower only once the entire amount has been paid to the bank. A secured credit card is a credit card that requires a cash deposit to open. Both of these strategies require an up-front cash investment, but they also give people with poor or nonexistent credit the opportunity to build positive credit history and their credit score.

Which is better for building credit: a loan or a credit card?

Both loans and credit cards can build credit over time if the borrower makes their payments on-time and in full. However, both can also pose risk if the borrower is unable to keep up with repayment. Deciding whether to get a credit builder loan or a secured credit card may depend on how soon you need access to your cash.

What is one disadvantage of a credit builder loan?

When you take out a credit builder loan, you won’t have access to the money you’re applying for until the loan’s term is up, which may be as long as 24 months. That means credit builder loans might not be right for people with short-term financial needs to take care of.

Photo credit: iStock/staticnak1983
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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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 .

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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Travel credit cards can deliver such perks as airline miles, hotel points, or other rewards with every purchase. Deciding which travel credit card makes sense will depend on what types of benefits and rewards matter the most for you. If you’re a frequent traveler with one airline or hotel chain, for instance, you might find it valuable to have the corresponding travel credit card.

Learn more about these credit cards so you can determine if one is right for you.

What Is a Travel Credit Card?

A travel credit card is a generic term that applies to a type of credit card that offers travel rewards. There are many different kinds of travel credit cards, and each one may offer a different array of rewards, benefits, and perks. Some travel credit cards might earn airline miles, while others offer hotel points.

Finding the right travel credit card for you will depend on your own specific spending and travel patterns.

Different Types of Travel Credit Cards

There are many different types of credit cards. In terms of travel credit cards, there are three main types: airline cards, hotel cards, and cards that earn generic travel points.

Airline Travel Credit Cards

Many airlines offer one or more airline travel credit cards that earn credit card miles that you can use to fly with that specific airline. With each purchase, you can get that much closer to your next flight. Additionally, many airline travel credit cards offer perks like free checked bags, a way to earn elite status, or discounts on inflight purchases.

Hotel Travel Credit Cards

Another type of travel credit cards are hotel credit cards issued by major hotel chains including Hilton, Hyatt, and Marriott. Similar to their airline counterparts, hotel travel credit cards let you earn hotel points with each purchase that you can then use to stay with their chain. Many hotel travel credit cards also offer hotel-specific perks, like elite status, increased earnings from stays, or an annual free night certificate.

Bank Travel Credit Cards

If you like traveling but don’t want to tie yourself to a specific airline or hotel chain, you can consider a more generic travel card. Some banks, including American Express, Chase, and Citi, offer travel credit cards that earn their own proprietary credit card points. You can then use these bank points for many different forms of travel.

4 Benefits of Travel Credit Cards

There are a number of advantages to having a travel credit card. Here’s a closer look at these upsides.

Qualify For Significant Welcome Bonuses

Many travel credit cards offer welcome bonuses when you’re approved for the card and meet certain minimum spending criteria. For example, you might earn 50,000 airline miles after spending $2,000 on your card in the first few months.

These welcome bonuses can be worth hundreds if not thousands of dollars, and they can be a great way to boost your travel budget. That’s why it’s important to understand how a credit card works when you sign up and what requirements there are to make the most out of your card.

Earn Airline Miles and Hotel Points

If you love to travel, you’re likely to be excited about the possibility of earning airline miles or hotel points with each purchase. The miles and points that you earn while using your travel credit card can help fund your next vacation trip.

Get Insurance Benefits

Some travel credit cards offer different types of insurance that you might find valuable if you’re a frequent traveler. Some credit card travel insurance protects you if you are delayed or an airline loses your baggage. Other credit card insurance might cover you while renting a car, allowing you to decline the rental car company’s high-priced insurance offerings.

Enjoy Other Perks and Card Benefits

Perks like elite status, free checked bags, or an annual free night certificate are other potential benefits of having a travel credit card. If you’re traveling outside the country, you might also consider an international credit card that you can use while abroad.

3 Disadvantages of Travel Credit Cards

While travel credit cards can come with many benefits, there are also some disadvantages you’ll want to keep in mind.

Limitations in Travel Choices

If you have an airline or hotel credit card, you will likely only earn airline miles or hotel points with that specific airline or hotel chain. This can limit where you can use your travel rewards. As one example, if you have a Delta Air Lines credit card, you won’t be able to use your miles if you want to fly United or Southwest.

Not as Flexible as Cash-Back Rewards

Earning airline miles and hotel points can seem fun and exciting, but it may not be the best way to maximize your earnings. You’ll want to carefully consider the benefits of credit card miles vs. cash back to decide which type of reward makes the most sense for you.

Potential for Annual Fees

Some (but not all) travel credit cards come with annual fees. These annual fees may be waived for the first year as an incentive for you to sign up, but you’ll be on the hook to pay the fee each year you continue to have the card.

While it is possible to get more value from your travel credit card than the amount of the annual fee, you’ll want to make sure that’s the case for your situation. Otherwise, you’ll want to focus your search on no annual fee credit cards.

Are Travel Credit Cards Worth It?

Whether a travel credit card is worth it will depend quite a bit on your own specific financial and travel situation. There’s no denying that there are many people who have used travel credit cards to great effect, traveling around the world at a discounted rate thanks to miles and points. Others have signed up for travel cards and continue to pay annual fees, even though they aren’t traveling as often.

Recommended: What Are Purchase Interest Charges on Credit Cards?

Alternatives to Travel Credit Cards

You do have other options you might think about if you’re not interested in a travel credit card.

If you’re intrigued by earning rewards with a specific brand but don’t travel often, you might consider a private label credit card. These types of cards can offer benefits at a specific store or retail establishment.

Another option could be a cash back rewards credit card. This would allow you to earn cash as a reward, which you could use for travel or anything else that suits you.

The Takeaway

Travel credit cards are a type of credit card that offers rewards, perks, and benefits for frequent travelers. You might earn airline miles, hotel points, or more generic bank points that you can use for a variety of different types of travel. While it is possible to use travel credit cards to rack up airline miles or other travel rewards, you’ll also want to keep an eye on any annual fees that you’re being charged.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

How do travel points and miles work?

Depending on the type of travel credit card that you have, you may earn airline miles, hotel points, or other types of travel rewards with each purchase that you make. These travel rewards will go into your account, and you can use them to book your next vacation.

Do travel rewards cards have annual fees?

There are some travel rewards cards that come with annual fees. You’ll want to be aware of these annual fees and make sure that the perks, rewards, and benefits that you receive are worth more than any annual fee you have to pay. There are also no annual fee credit cards that earn travel rewards, which may be a more attractive option.

How do I earn points with a travel credit card?

Most travel credit cards will earn airline miles, hotel points, or other travel rewards with each purchase. So earning points with a travel credit card may be as simple as just using your card to make any purchase at all. Additionally, some travel credit cards allow you to earn points as part of an initial signup bonus for being approved for the card and meeting minimum spending criteria.

Photo credit: iStock/nathaphat

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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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.

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If you spot a pending credit card transaction that isn’t correct or isn’t even yours, canceling it will likely be your top priority. And for good reason: It’s often wise to act quickly when dealing with this kind of financial situation rather than waiting to see how things work out. You want to take action so that the charge gets canceled before it’s posted to your credit card account.

Here’s how it may be possible to cancel a pending transaction and other important information about this topic.

What Are Pending Charges?

Pending charges or transactions are purchases on your credit (or debit card) that have not yet officially been posted to your account. When you use plastic to pay for something, the retailer will issue a charge which can take time to clear. Or, if there’s a preauthorized payment (say, you’re paying a deposit at a hotel to cover any incidental charges), it may show up on a credit card as a pending transaction.

These charges may then stay pending until posted, which can take up to several days. It could take longer if the merchant needs to complete tasks such as shipping the item you’ve purchased or adding the tip amount on a meal.

While these charges are pending, they typically won’t accrue interest if you’re using a credit card, nor will they count as part of the outstanding balance. However, it can affect your overall available balance and how much you can spend.

Not familiar with pending charges? No worries. In many cases you may not see pending transactions since credit and debit card issuers process them fairly quickly.

Can I Cancel Pending Transactions?

In many cases, you may not be able to stop a pending transaction because they haven’t been posted yet. That’s an aspect of how credit cards function; there can be a lag time as the charge works its way through processing.

Credit card issuers tend to help their cardholders dispute a transaction once it’s posted. So if you see a pending charge that looks incorrect, you may have better luck contacting the retailer in question to resolve the matter. This might yield the best results in terms of how to cancel a pending charge on your credit card.

However, there may be some scenarios when it may make better sense to talk to your bank or credit card company instead, such as unfamiliar or unauthorized transactions. In this case, you might be dealing with financial fraud, and your financial institution or the card issuer should be able to offer guidance.

Recommended: Guide to Canceling a Credit Card Payment

When to Contact the Merchant

You just read that, in general, it’s better to contact the merchant first if you want to cancel a pending transaction. But now, consider some of the reasons why you might want to get those charges struck from your account:

You Were Accidentally Charged Twice

Sometimes mistakes happen, and a merchant can process a purchase twice. It could even be a tech glitch where you pressed the “purchase” button on an online order and wound up with two orders (or more) instead of one.

If you notice two identical transactions on the same day and from the same merchant, you’re most likely double-charged. In this case, it’s better to contact the merchant immediately so they can cancel the extra charge and don’t ship you excessive products.

You Changed Your Mind

Whether it’s buyer’s remorse about overspending or you suddenly realize you already have the item you just bought, it’s not unusual to change your mind. The sooner you can contact the merchant, the more likely the pending transaction can get canceled.

That way, you don’t have to worry about going through extra steps, like receiving the item, then returning it, and waiting for how long a credit card refund takes.

You Haven’t Gotten the Item Yet

Perhaps you purchased an item a while ago, and it still hasn’t arrived. Maybe you no longer want it or aren’t interested in waiting any longer. (Maybe you bought a gift for a friend’s birthday which is coming right up.) If the merchant hasn’t sent it by the time you contact them, you may be able to get the pending change canceled.

How to Contact the Merchant

If you find yourself in any of these situations, here are some suggested next steps:

•   Have all relevant information ready when you contact the merchant, such as the total purchase amount, transaction date, and the order number. If you have a receipt, have that handy as the merchant may request to see it or ask for any information on that receipt. Don’t forget to note down what you said on the phone as a record or in case you need to escalate the situation.

•   Even if the merchant grants your request, hold into any relevant documentation until you don’t see the pending transaction anymore.

•   If your request is denied or ignored, you can wait until the credit card transaction is posted to request a refund or dispute the charge with your credit card company or bank.

Recommended: Understanding Pending Interest Charges on Credit Cards

When to Contact Your Credit Card Issuer or Bank

Though you generally won’t be able to dispute a pending transaction, there are several scenarios in which you may be able to do so.

You Don’t Recognize a Transaction

It’s a bad feeling when you see a pending charge that’s for an item or service you know isn’t yours. If you believe the pending transaction is due to fraud, it’s better to contact your credit card company or bank immediately to get it resolved.

The Amount of the Transaction Is Suspicious

What if you do recognize a transaction but there’s something off about the details? For instance, say you went to a flea market and swiped your card to buy yourself a necklace, but the pending charge is $100 higher than what you know the merchant said they were charging you. This might be a time to reach out to your bank or card issuer.

You Weren’t Able to Cancel a Recurring Purchase With The Merchant

If you had a recurring payment (say, a monthly gym membership) and canceled the agreement, the merchant should honor your request if you’ve followed their terms. In the unfortunate situation that you’ve done this but still see a pending transaction and the merchant is nonresponsive, it’s probably better to cancel it through your credit card company or bank. They will likely be able to show you how to stop a pending transaction.

Recommended: Guide to Choosing a Credit Card Company

How to Contact Your Credit Card Issuer or Bank

Each company may have its own method for handling requests for pending transactions. Some pointers:

•   To start, you might call your bank or credit card company and let them know your situation. They can then transfer you to the relevant department or customer representative. Email and chat with a customer service representative are often other convenient methods.

•   Jot down a record of whom you speak with and when.

•   As with disputing a pending transaction with the merchant, you will need to provide information such as receipts, interactions you’ve tried to have with the merchant, and the transaction amount you’re disputing.

•   Be prepared to create a paper trail. You may need to file a formal dispute which you will either fill out and send in or a representative can do so for you and then send you a copy. Additional steps may be taken to secure your account or to close it and open a new one if there’s been credit card fraud.

•   If you have had fraudulent activity, you may want to set up fraud alerts with the big credit reporting agencies. That way, you can be on alert if anyone tries to open an account in your name.

Consequences of Canceling a Pending Transaction

Even if you successfully cancel a pending transaction, it could still take several days for it to be removed from your account. In the meantime, it could affect your overall available balance.

Those using a credit card will want to watch what their available balance is when making purchases to ensure they’re not at risk of going over their credit card limit.

If you’re waiting for a pending transaction to be canceled on your debit card, don’t count on that money being available in your bank account just yet. It can be better to err on the side of caution. For instance, should you spend money you think you have and there isn’t enough in your account, you could have your transaction denied. Or you could go into overdraft and face paying a fee.

The Takeaway

When paying with plastic, there may be times that your account shows a pending charge that you want to cancel. In some situations, it’s best to reach out directly to the merchant who charged you; in others, contacting your financial institution or the card issuer will be your best move. It’s wise to stay aware of charges on your account so you can spot anything that’s amiss and deal with it swiftly.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

Note: Canceling a pending transaction is not offered by SoFi.

FAQ

How do I stop a pending debit transaction?

You can stop a pending debit card transaction by contacting the merchant and canceling the purchase. Or you can try contacting your bank if you don’t recognize the transaction, you suspect fraud is involved, or the merchant is unresponsive.

Can you cancel a payment while it’s pending?

You may be able to cancel a pending payment transaction in some cases. Contacting the merchant directly can be the best route. Many credit card companies may have you wait until the payment is posted before allowing you to dispute it.

Can I tell my bank to stop a pending transaction?

You can tell your bank to stop a pending transaction if you have a legitimate reason to do so, such as if the merchant ignores or denies your request or you suspect fraudulent activity.

Photo credit: iStock/Lemon_tm
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.

This content is provided for informational and educational purposes only and should not be construed as financial advice.

Third Party Trademarks: Certified Financial Planner Board of Standards Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, CFP® (with plaque design), and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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An $80,000 annual salary would allow you to purchase a home priced up to around $300,000 — that is, if you follow the conventional guidance, which is that you spend no more than a third of your pretax income on housing costs. But there’s more (lots more) to it than that.

By just about any measure, earning $80,000 a year is a good salary. It’s about $5,000 higher than the U.S. median household income, per Census data. But depending on where you live and other aspects of your financial profile, earning a good salary doesn’t always translate into being able to afford a large house — or, in some expensive cities, any house at all.

So how can you tell where you stand? Let’s dig into the details.

What Kind of House Can I Afford With $80K a Year?

As noted above, one basic rule of thumb is to spend no more than about a third of your income on housing — and ideally even less. That means that if you earn $80,000 per year, you should spend about $26,000 per year on housing.

That translates to roughly $2,200 per month, which should cover not only your mortgage payment but also utilities, home insurance, and other housing-related expenses.

However, as you’ve probably noticed, this still isn’t a straightforward answer; the size of your monthly mortgage payment doesn’t directly translate to the overall cost of the house. Other factors like your interest rate, debt-to-income ratio, and the size of your down payment all factor in — so let’s take a closer look at those.


💡 Quick Tip: SoFi’s Lock and Look ⁺ feature allows you to lock in a low mortgage financing rate for 90 days while you search for the perfect place to call home.

What is Debt-to-income Ratio (DTI)?

Your debt-to-income ratio, or DTI, is a measure of how much money you pay toward your debts each month relative to how much free cash you have available. It’s determined by dividing the sum of your monthly liabilities (i.e., credit card bills and student loan payments) by your gross monthly income.

If you are already paying quite a bit toward debt every month, you’ll have less money to spend on housing. (For example, someone earning $80,000 a year who is already paying $1,400 per month toward debt can likely only afford a house priced around $200,000.)

The higher your DTI, the riskier you appear to mortgage lenders — which may drive up your interest rate and, therefore, your monthly payment. And above a certain DTI level (usually around 40%, but sometimes as high as 50%), a mortgage lender might disqualify you from borrowing entirely. That’s why it’s often a good idea for would-be homebuyers to drive down their overall debt before moving seriously into the housing market.

Factoring in Your Down Payment

Along with how much debt you have, lenders also consider how much money you’re ready to put down for your home up front — otherwise known as your down payment. Generally speaking, the larger your down payment, the more house you can afford, since having so much money saved up is a favorable factor for home lenders. (Even if you keep your budget modest, having a larger down payment can help you save money over time since the amount you’ll be borrowing will be proportionally smaller.)

How Down Payment Assistance Can Help

Saving up a down payment can be one of the most challenging parts of the home-buying process, especially for first-time homebuyers. Fortunately, down payment assistance programs can help buyers overcome this hurdle — though keep in mind that the assistance itself is often a loan, which also needs to be repaid over time. Often, the interest on such loans is very low, making it a more viable option for homebuyers already struggling to get their foot in the door.

You may also need to prove financial need in order to qualify for down payment assistance for your mortgage. For example, you may have to be at or below a certain income threshold or have less than a given amount of liquid assets at your disposal to be eligible for down payment assistance.

Down payment assistance is offered through local governments, federal government bodies, and some nonprofits. If the prospect of saving a substantial chunk of money is blocking you from the home you hope to afford, it’s worth shopping around to see what kind of assistance is available.

Other Factors That Affect Home Affordability

Along with your current level of debt and how much of a down payment you’ve saved up, other factors affect how much home you can afford — and how affordable your city is, for that matter.

On your end, factors like your credit score and credit history, along with your job history and security, may increase or decrease your eligibility for a home mortgage loan (and, if you qualify, affect your interest rate). And as far as the affordability of homes themselves, where you live has a major impact, along with the size, type, age, and repair level of the homes you’re shopping for.

How Your Monthly Payment Affects Your Price Range

As mentioned above, figuring out how much house you can afford is all about figuring out how much you can afford to spend on housing each month. The higher the monthly payment you can comfortably afford, the larger the overall mortgage you can afford, which means you may be able to buy a higher-priced home. That said, it’s important to keep in mind that your mortgage is just the beginning.

Along with all of your other existing expenses — like car payments, student loan bills, utilities, groceries, and gas — owning a home can also increase the amount you spend on home maintenance relevant to renting. That’s because, once you’re a homeowner, when something breaks in your house, it’s your responsibility to fix it.

Most homes come with a variety of maintenance issues that need to be addressed at some point after purchase; sometimes, appliances break. Just be sure you’re not putting yourself in a position where your monthly mortgage payment is so high, you won’t be able to afford the other expenses that come along with homeownership.

How to Calculate How Much House You Can Afford

Use a housing affordability calculator to determine how much house you can afford based on your income, your current debts owed, your credit score, the size of your down payment, and your expected interest rate. (You can get a better sense of what, exactly, your interest rate might be by chatting with an agent from your home lender; they’ll also be able to give you an idea, given your financial profile, of how much house you can afford.)

Types of Home Loans Available to $80K Households

Fortunately, many different types of mortgage loans are available to households making $80,000 per year. For example, if you’re a first-time buyer, you may qualify for an FHA loan from the Federal Housing Administration, which allows you to buy with lower down payments and closing costs as well as less-stringent credit requirements.

Veterans and their families might look into VA loans. The U.S. Department of Veterans Affairs makes it possible to purchase a home with no down payment at all if you’re qualified.

And, of course, conventional home loans from private lenders are also available to those earning $80,000 — or most any amount.


💡 Quick Tip: Active duty service members who have served for at least 90 consecutive days are eligible for a VA loan. But so are many veterans, surviving spouses, and National Guard and Reserves members. It’s worth exploring with an online VA loan application because the low interest rates and other advantages of this loan can’t be beat.†

The Takeaway

As a $80,000 earner, chances are you can afford to purchase property — but the specifics depend on a wide variety of factors including your other markers of financial health as well as where you’re trying to buy. Using an home affordability calculator is a smart way to start exploring what your budget will allow before you embark on a search for a home and a home mortgage loan.

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

Is $80K a good salary for a single person?

$80,000 is about $5,000 higher than the U.S. median household income, so many people would consider it very good for a single person. “Good” is always a relative term when it comes to salary; whether or not the amount you earn covers your expenses is a highly personal dynamic.

What is a comfortable income for a single person?

Comfortable depends on where you live and your personal habits. A single person in San Francisco would need about $55,000, while the same person living in Cincinnati, Ohio, could get by on around $32,000, according to MIT’s Living Wage Calculator.

What is a liveable wage in 2024?

Living wage calculations are dependent on where you live and the cost of living in that area — along with factors like the size of your family and how many people in your household are working. Living wage calculators exist online that can help you better determine the living wage in your area.

What salary is considered rich for a single person?

People have so many different definitions of “rich.” If you’re settled in an area with a low cost of living, $100,000 might make you rich; in expensive cities, even a six-figure salary may only feel middle-class.

Photo credit: iStock/PIKSEL

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.

⁺Lock and Look program: Terms and conditions apply. Applies to conventional purchase loans only. Rate will lock for 91 calendar days at the time of preapproval. An executed purchase contract is required within 60 days of your initial rate lock. If current market pricing improves by 0.25 percentage points or more from the original locked rate, you may request your loan officer to review your loan application to determine if you qualify for a one-time float down. SoFi reserves the right to change or terminate this offer at any time with or without notice to you.

^†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.
^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.
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.

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.

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An income of $200,000 a year puts you in a good position to afford a home priced at $600,000. But whether you should aim higher or lower than this in your house hunt will depend on your debt, how much you’ve saved for a down payment, and current interest rates, among other factors. Read on for a breakdown of the variables that could affect how much of a mortgage you can manage.

What Kind of House Can I Afford with $200,000 a Year?

Not so very long ago, if you’d asked someone: “If I make $200,000 a year, how much house can I afford?” they probably would have said, “A mansion!” Of course, that isn’t necessarily true anymore. But that income still can get you a pretty sweet home in most places.

You can get an idea of how much house you can afford on a $200,000 income by using an online mortgage calculator or by prequalifying with one or more lenders for a home mortgage loan. Or you can run the numbers yourself using a calculation like the 28/36 rule, which says your mortgage payment shouldn’t be more than 28% of your monthly gross income, and your total monthly debt — including your mortgage payment — shouldn’t be more than 36% of your income. Let’s take a closer look at what could affect how much you can borrow and what your payments might be.


💡 Quick Tip: Not to be confused with prequalification, preapproval involves a longer application, documentation, and hard credit pulls. Ideally, you want to keep your applications for preapproval to within the same 14- to 45-day period, since many hard credit pulls outside the given time period can adversely affect your credit score, which in turn affects the mortgage terms you’ll be offered.

Understanding Debt-to-Income Ratio

You can expect lenders to look carefully at your debt-to-income ratio (DTI) — the second number in the 28/36 rule — when they’re deciding how much mortgage you can afford. It tells them how you’re handling the debt you already have and if you can manage more.

Your DTI ratio is calculated by dividing your total monthly debt payments by your monthly gross income. Mortgage lenders generally look for a DTI ratio of 36% or less; but depending on the lender and the type of home loan you’re hoping to get, you may be able to qualify with a DTI up to 43% or even 50%.

Typically, the lower your risk, the better your borrowing options. So if you want the best loan amount, rate, and terms, you’ll want to keep an eye on this number.

Your Down Payment Also Can Affect Costs

You may not need a hefty down payment to qualify for some home loans. But the more you can comfortably put down on a house, the less you’ll have to borrow, which can help lower your monthly payments. And if you put down at least 20%, you can avoid paying private mortgage insurance (PMI), which will further reduce your payments.

Other Factors that Can Affect Home Affordability

Your income, debt, and down payment are all primary factors in determining how much house you can afford. But there are other things that also can affect your ability to qualify for a mortgage that’s manageable, including:

Interest Rates

A lower mortgage interest rate can significantly lower your monthly payment — and the amount you’ll pay for your home over time. While interest rates are relatively consistent across the market, lenders do compete for customers, so you may benefit from shopping around. You also can help your chances of qualifying for a better rate by making sure your finances are in good shape and you have a solid credit score.

Loan Term

The most common mortgage term is 30 years, but different loan lengths are available depending on the type of mortgage you choose — and each has pros and cons. If you’re deciding between a 15-year vs. a 30-year mortgage, for example, the shorter term may offer a less expensive interest rate, which could save you money over the life of your loan. But the 30-year term will likely have lower monthly payments, which may be a better fit for your budget.

Homeowners Insurance

Understanding how to buy homeowners insurance and comparing the policies available may help you minimize this expense. Lenders require borrowers to have an adequate amount of homeowners insurance, and if you live in a state that’s considered “high risk,” the cost of coverage could be significant.

HOA Fees

If you’re buying in a community with lots of amenities, homeowners association (HOA) dues could add a substantial amount to your monthly home costs. (The monthly average is about $250, but fees can go as high as $2,500 or more.)

Property Taxes

Property taxes, which are generally based on the assessed value of a home, are often included in a borrower’s monthly mortgage payment, so it’s important to include this amount when you calculate home affordability. (Check your county’s website for the correct number.)

Location

If you’re a fan of real estate shows like House Hunters, you already know the city or even the particular neighborhood you want to live in can be a big factor in determining how much house you can afford. The overall cost of living can vary by state, and costs are also typically higher in cities vs. rural areas. If you aren’t willing to compromise on location, you may have to increase your housing budget to buy in the area you want.

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

How to Afford More House with Down Payment Assistance

If you have the means to manage a higher monthly payment but you need some help with your down payment, there are state and federal down payment assistance programs that can help.

Many programs set limits on how much an eligible home can cost, or on the homebuyer’s income. But it’s worth checking out what’s available to you — especially if you live in a state with higher home values. In California, for example, where homes can be expensive, a first-time homebuyer with a $200,000 income still can qualify for assistance in some counties.

Home Affordability Examples

With a home affordability calculator, you can get a basic idea of how much house you can afford by plugging in some basic information about your income, savings, debt, and the home you hope to buy. Here are some hypothetical examples:

Example #1: Saver with a Little Debt

Annual income: $200,000

Amount available for down payment: $80,000

Monthly debt: $650

Mortgage rate: 6.5%

Property tax rate: 1.125%

House budget: $700,000

Example #2: Less Debt, But Also Less Savings

Gross annual income: $200,000

Amount available for down payment: $20,000

Monthly debt: $200

Mortgage rate: 6.5

Property tax rate: 1.125%

House budget: $605,000

How You Can Calculate How Much House You Can Afford

Along with using an online calculator to figure out how much house you might be able to afford on a $200,000 income, you also can run the numbers on your own. Some different calculations include:

The 28/36 Rule

We already covered the 28/36 rule, which combines two factors that lenders typically look at to determine home affordability: income and debt. The first number sets a limit of 28% of gross income as a homebuyer’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.

Here’s an example: If your gross annual income is $200,000, that’s $16,666 per month. So with the 28/36 rule, you could aim for a monthly mortgage payment of about $4,666—as long as your total debt (including car payments, credit cards, etc.) isn’t more than $6,000.

The 35/45 Model

Another DIY calculation 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.

Here’s an example: Let’s say your gross monthly income is $16,666 and your after-tax income is about $13,000. In this scenario, you might spend between $5,833 and $5,850 per month on your debt payments and mortgage combined. This calculation gives you a bit more breathing room with your mortgage payment, as long as you aren’t carrying too much debt.

The 25% After-Tax Rule

If you’re worried about overspending, or you have other goals you’re working toward, this method will give you a more conservative result. With this calculation, your target is to spend no more than 25% of your after-tax income on your mortgage. Let’s say you make $13,000 a month after taxes. With this method, you would plan to spend $3,250 on your mortgage payments.

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

Recommended: 2024 Home Loan Help Center

How Your Monthly Payment Affects Affordability

Some eager homebuyers can tend to put most of their focus on a home’s listing price or the interest rate. But it’s how those factors and others combine to raise or lower the monthly payment that can ultimately determine whether a buyer can afford the home or not.

Before signing on the dotted line, it’s a good idea to run the numbers on an online mortgage calculator to be confident you can stay on track.

If you do find yourself struggling a bit — perhaps because your income changes or an unexpected life event occurs — refinancing to a new loan with a lower payment may be an option. (Especially if interest rates drop.) But how soon you can refinance may depend on the type of loan you have.

Types of Home Loans Available to $200,000 Households

A $200,000 income can go a long way toward helping a buyer qualify for certain mortgage options, such as a conventional or jumbo loan. But a higher salary also could make you ineligible for a government-backed loan that has income limits. There also may be limits on the purchase price and type of property, depending on the mortgage you get.

Here are a few of the options that may be available to $200,000-income households:

Conventional Loans This loan is issued by a private lender, such as a bank, credit union, or other financial institution.

FHA loans Insured by the Federal Housing Administration, FHA loans are a good resource for borrowers with a lower credit score or little money available for a down payment. There are no limits on how much you can earn and get an FHA loan, but there may be a limit on how much you can borrow depending on where you plan to reside.

VA loans A loan guaranteed by the U.S. Department of Veterans Affairs is an excellent option for eligible members of the U.S. military and surviving spouses. There are no income limits on VA loans, and there are no longer standard loan limits on VA direct or VA-backed home loans.

USDA loans These loans are guaranteed by the U.S. Department of Agriculture and are meant to help moderate- to low-income borrowers buy homes in eligible (typically rural) areas. Loan limits and income limits are based on the home’s location.


💡 Quick Tip: Keep in mind that FHA home loans are available for your primary residence only. Investment properties and vacation homes are not eligible.

The Takeaway

There are several variables that factor into how much home you can afford. Besides your income, lenders will look at your credit, your debt, and your down payment to determine how much you can borrow. To find a loan and monthly payment that’s a good fit for you, it’s a good idea to research and compare different loan types and amounts. And, if you have questions, you can seek advice from a qualified mortgage professional.

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

Is $200,000 a good salary for a single person?

According to the Census Bureau, only 11.5% of U.S. households earned $200,000 or more in 2022. So, if you’re earning $200,000 all on your own, you could say you’re doing pretty well.

What is a comfortable income for a single person?

“Comfortable” is a subjective term and can vary from one person to the next. For some people comfortable means being able to buy what they want. For others it means crafting and following a careful budget so that they know where their money is going each month.

What is a livable wage in 2024?

The Massachusetts Institute of Technology’s Living Wage Calculator lists living costs across the U.S., and its “livable wage” varies widely based on family size and location. For a single person with no children in Napa County, California, for instance, the living wage is $21.62 per hour. In Boone County, Nebraska, it’s $14.93 per hour.

What salary is considered rich for a single person?

The top 5% of earners made, on average, $335,891 in 2021, the most recent year for which data is available, according to the Economic Policy Institute. (If you feel as though you have to be in the top 1% to be “rich,” you’d have to earn $819,324 or more.)

Photo credit: iStock/YvanDube

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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