Buying a home is one of the biggest financial decisions you’ll ever make. Before you start scrolling through listings and attending open houses, it’s important to determine a realistic budget for your home purchase. Our calculator below will help you estimate how much house you can comfortably afford based on your income, debts, and other financial factors.
Factors That Determine How Much House You Can Afford
Several key factors influence your home buying power:
- Income: Your gross monthly income is the foundation of your home buying budget
- Debt: Existing debts reduce how much you can allocate toward housing
- Down Payment: A larger down payment means a smaller loan and potentially better terms
- Interest Rates: Current mortgage rates significantly impact your monthly payment
- Credit Score: Better credit means lower interest rates and higher approval odds
The Home Affordability Calculator
Use this calculator to get a personalized estimate of your home buying budget:
Understanding the Debt-to-Income (DTI) Ratio
Your debt-to-income (DTI) ratio is a critical metric lenders use to determine how much house you can afford. This ratio compares your monthly debt payments to your gross monthly income.
- Front-end DTI: Considers only housing costs (typically should be below 28%)
- Back-end DTI: Includes all monthly debt payments (typically should be below 36%)
Most conventional lenders prefer a back-end DTI ratio of 36% or less, though some loan programs may allow ratios up to 43% or even 50% in certain circumstances.
Conventional Wisdom: The 28/36 Rule
A common guideline in home affordability is the 28/36 rule:
- Spend no more than 28% of your gross monthly income on housing expenses
- Spend no more than 36% of your gross monthly income on total debt (including housing)
Beyond the Calculator: Other Considerations
While our calculator provides a solid starting point, consider these additional factors:
Future Financial Changes
- Career trajectory: Expecting a promotion or career change?
- Family plans: Children, education costs, or caring for aging parents?
- Retirement goals: How will this purchase affect your long-term savings?
Hidden Homeownership Costs
Remember to budget for:
- Home maintenance (typically 1-3% of home value annually)
- Utilities (often higher than in rentals)
- Moving expenses
- Furnishings and appliances
- HOA fees (if applicable)
- Home improvements
Market Considerations
- Local market conditions may affect what’s available in your price range
- Property taxes vary significantly by location
- Consider commute costs from different neighborhoods
Loan Options That May Affect Your Budget
Different mortgage programs have different requirements:
- Conventional loans: Typically require 620+ credit score, 3-20% down
- FHA loans: Allow lower credit scores, 3.5% down with 580+ credit
- VA loans: Available to veterans with no down payment required
- USDA loans: For rural homebuyers with no down payment required
Final Thoughts
Remember that the maximum amount you can borrow isn’t necessarily the amount you should borrow. Many financial experts recommend buying below your maximum budget to maintain financial flexibility for other life goals and unexpected expenses.
Use our calculator as a starting point, then consult with a mortgage professional to get pre-approved for a specific loan amount based on your unique financial situation.
