How Much Home Can You Afford?

You can afford a home up to:
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track value
Debt-to-Income Ratio
Monthly Payment
Down Payment
Estimated closing costs
Your recommended budget should be a comfortable fit within your overall finances. You should aim to keep housing expenses below 28% of your monthly gross income. If you have additional debts, your housing expenses and those debts should not exceed 36% of your monthly gross income.
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This calculator uses a a debt to income ratio based on stated risk appetite and adjusts it to take into account any existing debt. The ratio is then applied on the monthly income and adjusted it to take into account a national average cost of property tax (1.04%), home insurance (0.70%), and mortgage insurance (0.94%) to come up with a monthly payment maximum. Using the calculated monthly payment, term, and interest rate, a loan amount is calculated and adjusted to home value of loan amount plus down payment. Since the average cost of property tax and home insurance are based on home value and the and mortgage insurance on the loan amount, the maximum monthly payment is calculated recursively as they depend on each other. Mortgage insurance is only added in case where down payment is less than 20% of home value. Averages collected in March, 2024 and may differ significantly depending on state and insurance provider. Closing cost estimate is a mid point of 4% based on a 2%-6% national average and is not included in the calculation.

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Whether you’re a first-time home buyer, looking to up-size to accommodate a growing family, or it’s time to downsize as you move into empty-nesting, buying a home can be intimidating. Indeed, there’s a lot more to it than just the purchase price.

Many factors affect home affordability
—location, taxes, loan type, etc. Here are a few steps you should take before you go all in on a home.
  • Improve your debt-to-income ratio.
  • Build credit by consistent on-time payments, keep credit card balances low, and check for errors on your credit report.
  • Have a clear understanding of what you can afford. The 28/36% rule is a great rule of thumb.
  • Consider your mortgage options.

How Much House Can I Afford?

You probably think you have a good grasp on where your money goes—you know what you pay for rent and utilities, you know your car payment and insurance cost, and you know how much you pay for student loans or daycare or tuition or piano lessons.

It’s easy to track the big, recurring monthly expenses. They generally don’t change, and you know exactly when they’re due. But how much do you pay for gas each month? What about groceries? Dining out? Coffee?

Tracking every expense, every penny that leaves your account is vital to understanding the ebb and flow of your finances and getting a clear picture of your actual budget, not the budget that only includes the big recurring bills.

Once you know where your money goes each month, it’s time to categorize needs versus wants—things you can cut from your expenditures if necessary and things you can’t. For example, you could cut back on dining out, but your kid will definitely still need daycare.
It’s not all about outputs, though—you need to keep track of the money coming in, too. That means everything, not just your weekly or biweekly paycheck. Income from side hustles or dividends, interest earned on savings, and alimony or child support count here.

Once you have a handle on your finances, you might be tempted to ballpark what you can afford on a home, but resist the temptation and keep crunching those numbers.

Take advantage of our home affordability calculator and input your income and expenses, and any information you have on your dream home—mortgage amount, down payment, property taxes, homeowners insurance, mortgage insurance if you’re putting down less than 20%, and your interest rate—to help you get an idea of how much house you can afford.

The more debt you have, the less cash you have to spend on your dream home, and the less likely you are to get favorable terms on your mortgage.

How Does Debt Affect Home Affordability?

Some monthly expenses are fixed—housing costs, daycare, etc.—and some aren’t. Debt payments are one expense you can eliminate if you work at it. Whether it’s a car payment, credit card debt, or a personal loan, getting a handle on your debt is a great way to increase your ability to pay for more house.

Many financial planners suggest you follow the 28/36% rule—housing, including insurance and taxes, should be no more than 28% of your total income and no more than 36% of your total debt.

The more debt you have, the less cash you have to spend on your dream home, and the less likely you are to get favorable terms on your mortgage.

What Is Debt-to-Income Ratio?

Lenders also look at debt. The debt-to-income (DTI) ratio is a tried and true rule lenders use to determine if you’re a risky borrower. The higher your DTI, the less likely you are to get the best interest rate. Paying off recurring debt before applying for a mortgage is a surefire to increase your odds of getting favorable terms on your home loan.

Your debt also plays a role in your overall credit score. The more debt you have, the lower your score drops and the less likely you are to get a good rate or qualify for a loan from a reputable lender.

Paying off recurring debt like auto and student loans will have a significant impact, but getting rid of unsecured recurring debt, like credit card debt, is a surefire way to increase your credit score and look better to lenders.

What is the 28/36% rule?

  • Monthly mortgage payment
  • Property taxes
  • Homeowners insurance premiums
  • Homeowners association fees
Some lenders also include your utilities but as a rule of thumb it’s generally better to categorize utilities as contributing to your total debts.
Monthly Income
Monthly Mortgage Payment
Property taxes
Homeowners Insurance Premiums
Homeowners Association Fees
% of household income
Your recommended budget should be a comfortable fit within your overall finances. You should aim to keep housing expenses below 28% of your monthly gross income. If you have additional debts, your housing expenses and those debts should not exceed 36% of your monthly gross income.

How much does your down payment affect house affordability?

When you apply for a mortgage, lenders expect you to put money down toward the price of the house. The bigger your down payment, the lower your total mortgage amount and, therefore, the lower your monthly payments.

Twenty percent of the purchase price is generally considered the industry standard down payment. Some types of loans allow smaller down payments for qualified buyers, but you’ll be stuck with higher monthly payments, so it’s a trade-off. A large down payment also makes lenders see you as less of a risk, resulting in better terms and more options.

How does loan type affect house affordability?

There are a number of mortgage types out there to help people in different situations realize the dream of home ownership. If a 20% down payment is outside of your budget, consider a Federal Housing Authority loan. An FHA loan allows qualified buyers to purchase a home with as little as 3% down in some cases.

There are price limits on FHA loans, though they’re generous and take into account location and the current housing market. All FHA loans are required to carry mortgage insurance, so make sure you add that into your calculations when determining house affordability.

The US Department of Veterans Affairs (VA) provides zero down payment home loans to active duty and retired service people or their spouses at competitive rates and with no upper limit on the price of the home for first-time qualified buyers. VA loans don’t require private mortgage insurance (PMI) even if you don’t hit the 20% down payment mark, but there is a funding fee you need to consider when doing the math.

In addition to federal government-backed loans, traditional lenders offer a variety of products to appeal to a wide swathe of homebuyers. The most common is a 30-year fixed-rate loan. This type of mortgage spreads your payments out over thirty years, meaning the lowest possible payment, and provides a stable interest rate—the rate you get in the beginning is the rate you have in the end unless you refinance.

Fifteen-year fixed rates and other shorter-term loans are great options for someone with a larger down payment or who is in a position to pay a higher monthly payment to pay their loan off faster. Shorter loan terms mean a higher monthly cost and affect overall house affordability month-to-month.

How Do Interest Rates Affect House Affordability?

The housing market is volatile, reacting to even the slightest changes in the economy. Mortgage rates go up and come down based on what’s happening in the wider world. During the height of the COVID-19 pandemic, rates dropped to a 50-year low, leading to high demand from buyers and higher housing prices as sellers saw an opportunity to make more profit on their homes.

Despite the dramatic dip in 2021, mortgage rates rose in 2022 and 2023 and hit 7.8% in the fourth quarter of 2023. Home prices came down some as a result, but not to pre-pandemic levels.
interest rate chart
This ebb and flow illustrates that while low rates are good if they go low enough, they can lead to higher overall prices, and higher overall home prices mean higher monthly payments. Striking a balance between rate and price is the ideal way to ensure an affordable monthly payment. Watch the market and know where interest rates are going so you can strike while the iron is hot and get the best bang for your buck.

How Does Location Affect House Affordability?

most expensive zip
Mortgage rates and loan types affect the bottom line, but they aren’t the only factors to consider when determining how much house you can afford. Location plays a crucial role in what your monthly payment will be.

Taxes, homeowner’s insurance, and even which neighborhood you choose (if you choose to be in a neighborhood at all) come into play and have a significant impact on your monthly payment. Metro areas have higher property taxes than non-metro areas; new construction will generally have a slightly higher tax and insurance rate than existing homes; homes in neighborhoods are likely to have Homeowners Association fees that, while maybe not rolled into your mortgage payment in all instances, will affect how much you pay monthly for your home.
least expensive zip
Owning your dream home isn't a pipe dream; with a little planning, a little math, and a little knowledge, you can arm yourself with everything you need to purchase a home you can afford with confidence. Remember, affordability isn't just about numbers; it's about finding a comfortable balance between your financial reality and your aspirations.

Everyone’s particular financial situation is different

Work with an expert financial advisor to determine what strategy is best to manage your equity compensation.
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