How much house can I afford?
How much house can I afford?
Buying a home is one of the biggest financial decisions you'll make, so understanding how much house you can afford is critical. In this guide, we'll explore the key factors lenders use to determine your home-buying potential and help you calculate your mortgage affordability.
Home affordability calculator
Our home affordability calculator will help you estimate a comfortable mortgage based on your monthly income and spending. Simply enter your financial details to get a personalized home-buying insight.
This calculator offers a helpful snapshot of your home buying potential, but your actual mortgage approval will depend on a comprehensive review of your financial health, including income, credit score, debt, and other factors.
How much mortgage can I afford?
Several key factors determine how much mortgage you can afford. Let's break down what matters most:
Annual income
Your annual gross income is the starting point for determining your home buying budget. This is the total amount you earn in a year before taxes. A common rule of thumb is to look for homes priced between 2.5 to 3 times your annual household income.
For example, if you earn $80,000 per year, a $200,000 to $240,000 home may fall within your affordability range. However, this is just a general guideline. Your actual home buying power depends on many factors, so for a more precise estimate use a detailed mortgage affordability calculator and consult with a mortgage professional.
Monthly debts
While your income sets a baseline for affordability, lenders also consider your monthly debt payments to see how much of your income is already committed.
Your monthly debt includes car loans, student loans, credit card payments, and other monthly recurring obligations. For example, if you pay $300 per month for a car loan, $250 per month for credit cards, and $450 per month for child support, your total monthly debt is $1,000.
Debt-to-income (DTI) ratio
Using your annual income and monthly debt information, lenders calculate your debt-to-income (DTI) ratio. This key factor compares your monthly debt payments to your gross monthly income. A common guideline is the 28/36 rule that says housing costs should be under 28% of your gross monthly income, while total debts (including housing) should be under 36%.
For example, with an average $5,000 monthly income:
Ideal housing costs would be under $1,400 (28%).
Total monthly debts including housing should fall under $1,800 (36%).
While 36% is a standard debt threshold, lenders may offer flexibility based on your overall financial health. Always consider your full financial picture, including savings and lifestyle expenses, to ensure you're not overextending yourself.
Down payment
The initial cash you pay when buying a home—known as a down payment—also impacts mortgage affordability. Down payment amounts vary widely, with 20% considered ideal for avoiding mortgage insurance and building home equity faster. First-time home buyers typically put down 5% to 10%.
A larger down payment requires more initial savings but:
Reduces the amount you need to borrow
Lowers your monthly payment
Helps you qualify for better mortgage interest rates
Can help you avoid private mortgage insurance (PMI)
Government-backed FHA, VA, and USDA loans make homeownership more accessible for different borrower groups. FHA loans require a minimum 3.5% down payment, while VA and USDA loans offer zero down payment options for eligible buyers.
Loan terms
The length of your mortgage affects both your monthly payment and the total cost over time. Choose a term that balances what you can afford each month with how much you want to save long-term:
A 30-year loan gives lower monthly payments but costs more in interest over the life of the loan.
A 15-year loan has higher monthly payments but saves money in interest overall.
Interest rate
While loan terms set the timeline, your interest rate impacts your monthly payments and overall home affordability. Rates vary based credit score, down payment, and market conditions, and even small changes can make a big difference in what you pay.
For instance, on a $300,000 loan, a 0.5% rate increase (from 6% to 6.5%) could add over $100 to your monthly payment and $36,000 in interest over 30 years.
Property taxes
Property taxes are another key factor in your home's affordability. These taxes are based on your home's assessed value and vary by location. Typically included in your monthly mortgage payment, property taxes can significantly impact your overall housing costs.
For example, a 1.2% annual tax on a $300,000 home translates to $3,600 per year or about $300 monthly.
Homeowners insurance (HOI)
Homeowners insurance is an important consideration that shouldn't be overlooked when calculating your total housing expenses. Homeowners insurance protects against damage from things like fire or storms and is required by mortgage lenders.
Home insurance costs depend on several factors, such as the value of the home and its location. On average, expect to pay about $150 to $270 per month for insurance.
Private mortgage insurance (PMI)
Another potential cost is private mortgage insurance (PMI), which lenders require if your down payment is less than 20%. PMI protects their investment if you stop making payments and costs approximately 0.5% to 1.5% of the loan annually. For every $100,000 borrowed, PMI could add $500 to $1,500 yearly, or $42 to $125 to your monthly mortgage payment.
HOA dues
Homeowners association (HOA) dues represent another expense that can affect a home's affordability. In communities with shared amenities, monthly fees can range from $50 to $500, covering services like landscaping and pool maintenance. Don't forget to include these costs when planning your overall housing budget.
Other house affordability factors
Previously, we covered the most critical aspects of home affordability, but there are even more factors that influence how much house you can afford:
Cash reserves: Lenders often want to see savings beyond your down payment, sometimes enough to cover several months of mortgage payments. This demonstrates financial stability.
Regular expenses: Consider ongoing costs like childcare, groceries, and personal financial goals (e.g., retirement savings). These impact your monthly budget alongside your mortgage.
Homeownership costs: Budget for utilities, maintenance, and unexpected repairs. These expenses will likely change when you move to a new home.
Credit profile: Your credit score and overall debt affect your borrowing power and interest rate. A stronger credit profile can increase your home buying budget.
By looking at these additional factors, you'll get a smarter, more realistic picture of how much home you can truly afford without stretching your budget too thin.
How much house can I afford on my salary?
A common financial rule of thumb suggests you can purchase a home priced at 2.5 to 3 times your annual income. This simple calculation provides a quick snapshot of your potential home buying budget, helping you set realistic expectations before diving into the housing market.
| Annual salary | How much home you can afford* |
|---|---|
| $50,000 | $125,000 – $150,000 |
| $60,000 | $150,000 – $180,000 |
| $70,000 | $175,000 – $210,000 |
| $80,000 | $200,000 – $240,000 |
| $100,000 | $250,000 – $300,000 |
| $120,000 | $300,000 – $360,000 |
| $150,000 | $375,000 – $450,000 |
| $200,000 | $500,000 – $600,000 |
| $300,000+ | $750,000 – $900,000+ |
*Note: Guideline only; actual home affordability depends on your individual financial situation.
Keep in mind that while this table provides a guideline of home affordability by salary, other factors such as down payment, debt-to-income ratio, and overall financial stability all play a role in determining your true home buying power. For personalized guidance, consult a mortgage professional.
Wondering if buying or building a home is more affordable? Typically, buying an existing home is more cost-effective, often allowing you to get more house for your money. For a comprehensive comparison, check out our guide that answers the question, "Is it cheaper to build or buy a house?"
Strategies to boost your home buying power
Feeling priced out of the housing market? You're not alone. Buying a home is more expensive than ever. Fortunately, these practical strategies can help you build financial strength, expand your options, and get closer to owning the home of your dreams:
Improve your credit score by paying bills on time and keeping credit card balances low. This can help you qualify for better mortgage rates and loan terms. Aim for a credit score of at least 620 for most conventional mortgages.
Save for a larger down payment by cutting expenses and creating a strict budget.
Explore down payment assistance programs and first-time home buyer grants.
Consider a less expensive home or be flexible about location and features.
Look into special mortgage options like FHA or VA loans with lower down payment requirements.
Negotiate mortgage rates by comparing lenders and asking them to compete for your business.
Consider an adjustable-rate mortgage (ARM) with lower initial interest rates for short-term homeownership.
FAQs about home affordability
How much house can I afford with an FHA loan?
FHA loans can be a game-changer for many homebuyers, especially those with lower credit scores or limited savings. These loans follow a 31/43 rule, meaning your housing costs should not exceed 31% of your pre-tax income, and total monthly debts should remain under 43%.
With a minimum credit score of 500, you can qualify for an FHA loan with a 10% down payment. If your score is 580 or higher, you'll only need a 3.5% down payment. However, FHA loans have limits on how much you can borrow, and they also require mortgage insurance, which impacts your overall affordability.
While these loans offer more flexibility than conventional mortgages, your specific income, existing debts, and local home prices will ultimately determine how much house you can afford.
How much house can I afford with a VA loan?
VA loans make homeownership more affordable for service members, veterans, and their spouses by offering loans with zero down payment, no private mortgage insurance (PMI), and competitive rates. While VA loans include a one-time funding fee and are only for primary residences, they remain an excellent option for those eligible.
Most lenders use a 41% debt-to-income (DTI) ratio to determine affordability, meaning your total monthly debts, including the mortgage, shouldn't exceed 41% of your gross income. For example, if you earn $5,000 a month, you could afford monthly payments of around $2,050.
To get a clearer picture of what you can afford, use a VA loan calculator or speak with a VA-approved lender.
How much house can I afford with a USDA loan?
USDA loans offer an affordable path to homeownership for low- to moderate-income buyers in rural areas. While there's no strict purchase price limit, the property must be in a USDA-approved rural area. For a precise estimate of what you can afford, consult a USDA-approved lender who can evaluate your specific financial situation.
How much can I afford to spend on a house?
The amount you can afford to spend on a house depends on several factors, including your income, debts, and down payment. To get a precise estimate of what you can afford, it's best to:
Use an online house affordability calculator that considers your specific financial situation.
Get pre-qualified by a lender for a more accurate assessment.
Consider down payment assistance programs to potentially increase your buying power, especially if you're a first-time buyer.
Remember, while you may qualify for a certain loan amount, it's important to choose a monthly payment that fits comfortably within your budget and aligns with your long-term financial goals.
What are the upfront costs of buying a home?
Buying a home comes with several upfront costs you'll need to budget for:
Earnest money: A good faith deposit of 1% to 3% of the home's price, which gets applied to your other costs
Down payment: The largest cost, ranging from 3% to 20% of the purchase price, except for some USDA and VA loans that offer zero down payment
Closing costs: Fees for appraisals, inspections, title services, and lender charges—also called house closing costs—are typically 2% to 5% of the loan amount
Prepaid expenses: Advance payments for property taxes, homeowner's insurance, and mortgage interest
For a $300,000 home, you might need $15,000 to $75,000 up front. To understand your specific costs, consult with a lender who can provide a detailed breakdown based on your situation.
How much second house can I afford?
The amount of second home you can afford depends on your financial situation. Lenders typically use a 43% debt-to-income ratio, requiring a larger down payment (10% to 20%) and potentially higher interest rates than for a primary residence. Consider additional costs like taxes, insurance, and maintenance when calculating affordability.
What to look for in a mortgage professional
When interviewing potential mortgage advisors, consider these suggestions:
Choose a "whole of market" broker with access to products from numerous lenders, including banks and specialist providers.
Ask about their experience with first-time homebuyers and various loan types (conventional, FHA, VA).
Inquire about the types of mortgage products they offer and their knowledge of current rates.
Seek estimates from multiple lenders and carefully review the Loan Estimate documents they provide.
Look for professionals with strong communication skills and problem-solving abilities.
Ensure they prioritize transparency by explaining costs, fees, and terms up front.
Check if they offer ongoing support services.
Questions to ask a mortgage lender
Asking these questions can help you compare lenders and find the best mortgage option for your needs:
What loan products do you offer, and which would you recommend for my situation?
What are your current interest rates and annual percentage rates (APR)?
What are the down payment requirements for different loan options?
What will my estimated monthly payment be, including taxes and insurance?
What fees will I be responsible for at closing?
Do you offer any first-time homebuyer programs or down payment assistance?
How long does your approval process typically take?
What documents will I need to provide for my application?
How do you prefer to communicate with clients throughout the process?
Will you be servicing my loan after closing?
Using our proprietary cost database, in-depth research, and collaboration with industry experts, we deliver accurate, up-to-date pricing and insights you can trust, every time.