How much house can I afford on $120k a year?

The 28/36 rule on $120k: your maximum monthly mortgage payment

Lenders size a mortgage with two debt-to-income (DTI) ratios. The front-end ratio compares your housing payment (PITI) with gross pay and traditionally tops out at 28%. The back-end ratio adds car, student-loan and credit-card minimums and traditionally tops out at 36%. Together they're the "28/36 rule" — the most common answer to "how much house can I afford?"

On $120,000 a year, gross pay is $10,000 a month, so the 28/36 rule gives:

What about 43%? It was the hard debt-to-income cap for a Qualified Mortgage until the Consumer Financial Protection Bureau replaced it with a price-based test in 2021 (mandatory since October 2022). Today 43% is still FHA's standard back-end ratio and a widely used benchmark, and Fannie Mae's automated underwriting can approve up to 50% with strong credit and reserves. If a lender approved you at the 43% line with no other debts, your housing payment could reach $4,300 — enough for about $640,000 with 20% down — but that leaves far less for everything else.

At this income you can afford roughly a median-priced American home or a little less, as long as you keep other debts small. The 28/36 rule leaves $800 a month for car, student-loan and card payments before your house budget starts to shrink.

How much house can I afford on $120k? Price by down payment at 7.24%

Here's how a $2,800 monthly payment turns into a home price. We use the Freddie Mac average 30-year fixed rate of 7.24% for the week of October 29, 2026, property tax at the 0.9% national effective rate, homeowners insurance scaled from the national average, and estimated mortgage insurance whenever you put down less than 20%.

Estimates. FHA loan includes the 1.75% upfront MIP financed; annual MIP 0.55%. Conventional PMI assumed at 0.60% (5% down) and 0.45% (10% down) of the loan per year. Prices rounded to the nearest $1,000; no HOA dues.

The spread between scenarios — $333,000 to $417,000 — comes from mortgage insurance and the size of the loan, not from the rate. Conventional PMI can be cancelled once you reach 20% equity (it ends automatically at 22%), while FHA's annual MIP stays for the life of the loan when you put down less than 10%.

How car payments and student loans change what you can afford

The 36% back-end limit only bites once your other debts exceed $800 a month (8% of gross pay). Below that, the 28% front-end limit is the binding constraint and a small car payment doesn't change your price. Above it, every dollar of debt payment is a dollar less for housing.

Good news at $120k: even a $600 car or student-loan payment fits inside the 8% gap, so your 28/36 price is unchanged. A $1,000 debt load, though, would cut it to about $387,000. Lenders count minimum required payments, so a credit card with a $2,000 balance typically adds only a small minimum payment, while a leased car counts in full.

Can you buy a median home on $120k? 8 major metros compared

The national median existing-home price was $417,500 in September 2026 (NAR). To buy that home with 20% down under our assumptions you'd need about $120,000 a year; with $120k you're $0 short. Metro medians differ far more than any rule of thumb:

Approximate: NAR Q2 2026 metro median single-family existing-home prices (via HSH.com). Income needed uses the same 7.24% rate, 0.9% tax and insurance assumptions as above.

Atlanta, Houston, Pittsburgh fit the 28% rule; Chicago would need a stretch toward 43% DTI, while Los Angeles, Boston, Seattle, Denver are out of reach for a median home on one $120k income. Remember that a metro median mixes downtown and far-out suburbs; your price range may exist in outer neighborhoods even where the median is too high.

What a $2,800 housing payment covers (PITI breakdown)

The 28% rule caps the whole payment, not just the loan. With 20% down on a $417,000 home, here is how $2,800 a month splits up:

Taxes and insurance take 19% of the payment here. They vary far more than the mortgage rate does: insurance in Florida, Louisiana or wildfire-prone parts of California can be two to three times the national average, and property tax rates run from about 0.3% to over 2% by state. In the first year about $3,232 of your payments would pay down principal; the rest is interest.

Down payment and closing costs: how long to save on $120k

The monthly rule tells you what you can carry; cash decides when you can buy. Assuming closing costs of about 3% of the price (2%–5% is typical), here's the cash each scenario needs — and how long it takes to save if you put away 15% of your estimated take-home pay of $7,771 a month (single filer, 2026 federal tax and FICA, no state tax).

Fun equivalent: years of saving 15% of take-home ($13,988 a year). Gifts from family, down payment assistance and seller credits shorten the timeline.

One more reality check: after federal tax and FICA you'd take home about $7,771 a month, so a $2,800 housing payment is 36% of your spendable income before state tax, utilities and upkeep.

How interest rates change your home budget

Rates matter almost as much as income. A year ago the 30-year average was 6.17%; in the week of October 29, 2026 it was 7.24%. On $120k, a one-point drop in the rate would raise the price you can afford by about $36,000 with the same $2,800 payment.

Same PITI budget, tax, insurance and mortgage-insurance assumptions. Your own rate depends on credit score, points, loan type and lender.

Rent or buy on $120k?

The 30% rent rule would let you rent up to about $3,000 a month on $120,000 a year (see how much rent you can afford on $120k). Owning the $417,000 home costs $2,800 in PITI plus roughly $521 a month for maintenance — about $3,321 in all — and ties up $95,823 in down payment and closing costs.

If comparable homes in your area rent for much less than $3,321, renting while you save a larger down payment can make sense; if rents are close to that number, buying builds equity — $3,232 of principal in the first year alone — and locks in a fixed principal-and-interest payment.

Tips to afford more house on $120,000 a year

• Treat the 28% number as a ceiling; many buyers are more comfortable at 25% of gross.
• Shop property taxes: the same price can cost hundreds more a month in Texas, Illinois or New Jersey than in lower-tax states.
• Keep 3–6 months of expenses in reserve after closing — lenders like reserves, and so will you when the water heater fails.
• Consider buying discount points only if you expect to keep the loan longer than the break-even period.
• Compare a 15-year loan if the payment fits: rates run lower and you build equity much faster.

Related guides

• House on $110,000 a yearLower salary
• House on $130,000 a yearHigher salary
• Rent you can afford on $120kRent vs buy
• $325,000 mortgage paymentYour loan size at today's rate
• $120,000 after taxes by state50-state take-home pay
• Is $120k a good salary in Texas?Cost-of-living guide
• Mortgage calculatorPITI, PMI, amortization
• Home affordability calculatorAll salaries $40k–$300k

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Sources & assumptions

• Mortgage rate: Freddie Mac Primary Mortgage Market Survey (PMMS), week of October 29, 2026 — 30-year fixed 7.24% (prior week 7.32%, a year earlier 6.17%), 15-year fixed 6.6%. PMMS is a national average for borrowers with strong credit and 20% down; FHA and low-down-payment quotes differ.
• National median: National Association of Realtors (NAR), existing-home sales for September 2026 (released October 13, 2026) — $417,500 for all existing homes; NAR's Q3 2026 single-family median was $432,900 (released October 29, 2026).
• Metro prices (approximate): NAR metropolitan median single-family existing-home prices for Q2 2026, as tabulated in HSH.com's "Income you need to purchase a median-priced existing home" (Q2 2026). Metro medians cover whole metropolitan areas; city neighborhoods and condos differ widely.
• Property tax: 0.9% of value per year, the 2025 national effective rate for single-family homes (ATTOM). Insurance: $2,490 a year per $400,000 of dwelling coverage (NerdWallet, 2026), scaled to price. Both are national averages — your state can be far higher or lower.
• Mortgage insurance (estimates): FHA annual MIP 0.55% of the base loan plus 1.75% upfront MIP financed into the loan (HUD, for loans ≤ $726,200 with under 5% down). Conventional PMI assumed at 0.60% a year with 5% down and 0.45% with 10% down for a borrower with good credit; Freddie Mac cites roughly $30–$70 a month per $100,000 borrowed, and actual quotes depend on credit score.
• Loan limits 2026: conforming baseline $832,750 (FHFA); FHA $541,287 in most counties up to $1,249,125 in high-cost areas (HUD). Closing costs assumed at 3% of price (2%–5% is typical). No HOA dues.
• Take-home pay: single filer, 2026 federal brackets and $16,100 standard deduction (IRS Rev. Proc. 2025-32), FICA, no state tax — same engine as our paycheck calculator.
• The 28/36 rule is a traditional lender guideline, not a law. The 43% debt-to-income cap was the Qualified Mortgage (QM) limit until the CFPB replaced it with a price-based test (mandatory since October 1, 2022); 43% remains FHA's standard back-end ratio and a common benchmark, while Fannie Mae's automated underwriting can approve up to 50% DTI.