Home Affordability Calculator: How Much Home Can You Afford?

Author: Jon Kollman

Published on: 4/7/2025|4 min read

Fact Checked

Author: Jon Kollman|Published on: 4/7/2025|4 min read

Fact Checked

Figuring out your home budget is the first real step in buying a home. Before you browse listings or visit open houses, it’s smart to get a personalized estimate of how much home you can afford. Knowing your budget upfront helps you focus on homes within your price range — and avoid the frustration of falling for one that’s out of reach.

Key Takeaways

Home affordability is impacted by your income, credit score, debt, mortgage interest rates, and the amount of your down payment.
Many lenders are guided by what’s known as the 28/36 rule, which recommends spending no more than 28% of your monthly income on housing expenses and 36% on total debt payments.
Even small differences in interest rates can end up costing you thousands of dollars over the term of your home loan.
AmeriSave Loan Experts can guide you through the home loan selection process, helping you understand exactly how much home you can afford.

Factors that impact the home you can afford

Your salary is a big part of how much home you can afford, but it's not the whole story.

Lenders look at a handful of other factors to determine your home buying power, including:

Credit score: Credit scores directly impact mortgage rates. If you have a higher credit score, you'll usually qualify for a lower interest rate, which can make a big difference in your monthly payments. Improving your credit score before applying for a mortgage could save you thousands over the life of your home loan.
Monthly debts: Lenders calculate your debt-to-income (DTI) ratio to determine your financial health. Lowering your existing debts, such as car and credit card payments, can free up more of your monthly budget and increase how much home you can afford.
Down payment: A bigger down payment could mean smaller monthly mortgage payments. While 20% is traditionally the target down payment to avoid paying private mortgage insurance (PMI), even smaller down payments can impact affordability.
Mortgage rate: Even small changes in mortgage rates can impact your monthly payments. Locking a rate when the timing is right could stretch your buying power.

All together, these factors give you a clear picture of your true home-buying budget, helping you target homes within your reach and shop with confidence.

Understanding your debt-to-income ratio

One of the first things lenders look at when determining how much home you can afford is your debt-to-income (DTI) ratio. DTI measures how much of your monthly income goes toward paying off your debts. A lower DTI usually improves your chances of getting a lower interest rate, larger loan amount, and better mortgage terms.

Your DTI ratio is a percentage determined by dividing your total monthly debt payments by your gross monthly income. For example:

Monthly debt: $2,500 --- Total monthly debt from student loans, car payments, credit cards, and proposed mortgage payments
Gross monthly income: $7,000 --- Total earned income before taxes and deductions
DTI ratio: 35.7% --- Monthly debts ($2,500) ÷ gross monthly income ($7,000) = 0.357

Most lenders like to see a DTI ratio below a certain threshold. That's where the 28/36 rule comes in.

The 28/36 rule

The 28/36 rule is a guideline for balancing your housing costs and total debt:

28% of your gross monthly income (or less) should go toward housing expenses. This includes your mortgage, property taxes, and insurance.
36% is the max for your total monthly debts --- including housing costs, car loans, student loans, and credit cards.

So, let's say your monthly gross income is $7,000 like our example above.

28% of $7,000 = $1,960 for housing costs
36% of $7,000 = $2,520 for total monthly debt

With monthly debts at $2,500, you're in a good spot because your DTI is under 36%, which shows lenders you can likely handle the mortgage you're applying for.

If you're over those targets, don't worry. Paying down existing debts, even a little, can make a noticeable difference. It's one of the quickest ways to increase what you can afford and qualify for better loan terms.

How mortgage rates affect home affordability

Mortgage interest rates significantly influence how much home you can afford because they directly impact your monthly payments. Even a 1% change in your rate can shift your monthly payments by hundreds of dollars. Buying a home with a high interest rate can add up over time.

Imagine you're buying a $300,000 home with a 30-year term, and put $60,000 (20%) down:

At a 6% interest, your monthly payment for principal and interest would be $1,439.
Increase that rate to 8%, and your payment jumps to $1,761 per month --- that's $322 more per month and $3,864 more per year in mortgage payments.

Beyond the rate itself, the type of mortgage you choose matters too.

A fixed-rate mortgage offers predictable payments that stay the same for the life of your loan. In contrast, an adjustable-rate mortgage (ARM) typically starts with lower rates, which can boost your buying power --- but they can rise later.

Understanding how different mortgage options impact affordability can help you choose the best loan for your budget and tolerance for risk. Always compare mortgage lenders to secure your best possible rate and terms.

Start your home buying journey

Figuring out how much home you can afford is just the start. Once you have a clear budget in mind, the next move is choosing from the many types of home loans available.

At AmeriSave, our Loan Experts help take the pressure off. We'll walk you through your options, explain how different loans stack up, and help you find the best fit for your finances and long-term goals.

Knowing what you can afford means you can shop with confidence. Want to see what's possible? Start with a quick preapproval and take one step closer to owning a home.

Frequently Asked Questions

Your income, debt-to-income (DTI) ratio, credit score, down payment amount, and mortgage interest rate all influence what you can afford as a home buyer. Lenders review these factors to determine risk and your ability to repay, impacting the final loan size and terms you qualify for.

Prequalification provides you with an estimate of the maximum loan amount a lender is likely to offer based on your income and debts. What you can comfortably afford, however, might be less than this prequalification amount. To determine affordability, consider your personal budget, expenses, and financial goals — not just what a lender approves.

Debt affects affordability by increasing your debt-to-income (DTI) ratio. High debt payments, like car loans or credit cards, limit the amount lenders will loan you, reducing your home buying options. Getting your credit mortgage-ready can improve your purchasing power and loan options.

Overview
Key Takeaways
Factors that impact the home you can afford
Understanding your debt-to-income ratio
The 28/36 rule
How mortgage rates affect home affordability
Start your home buying journey
FAQ

Factors that impact the home you can afford Your salary is a big part of how much home you can afford, but it's not the whole story. Lenders look at a handful of other factors to determine your home buying power, including: Credit score: Credit scores directly impact mortgage rates. If you have a higher credit score, you'll usually qualify for a lower interest rate, which can make a big difference in your monthly payments. Improving your credit score before applying for a mortgage could save you thousands over the life of your home loan. Monthly debts: Lenders calculate your debt-to-income (DTI) ratio to determine your financial health. Lowering your existing debts, such as car and credit card payments, can free up more of your monthly budget and increase how much home you can afford. Down payment: A bigger down payment could mean smaller monthly mortgage payments. While 20% is traditionally the target down payment to avoid paying private mortgage insurance (PMI), even smaller down payments can impact affordability. Mortgage rate: Even small changes in mortgage rates can impact your monthly payments. Locking a rate when the timing is right could stretch your buying power. All together, these factors give you a clear picture of your true home-buying budget, helping you target homes within your reach and shop with confidence. Understanding your debt-to-income ratio One of the first things lenders look at when determining how much home you can afford is your debt-to-income (DTI) ratio. DTI measures how much of your monthly income goes toward paying off your debts. A lower DTI usually improves your chances of getting a lower interest rate, larger loan amount, and better mortgage terms. Your DTI ratio is a percentage determined by dividing your total monthly debt payments by your gross monthly income. For example: Monthly debt: $2,500 --- Total monthly debt from student loans, car payments, credit cards, and proposed mortgage payments Gross monthly income: $7,000 --- Total earned income before taxes and deductions DTI ratio: 35.7% --- Monthly debts ($2,500) ÷ gross monthly income ($7,000) = 0.357 Most lenders like to see a DTI ratio below a certain threshold. That's where the 28/36 rule comes in. The 28/36 rule The 28/36 rule is a guideline for balancing your housing costs and total debt: 28% of your gross monthly income (or less) should go toward housing expenses. This includes your mortgage, property taxes, and insurance. 36% is the max for your total monthly debts --- including housing costs, car loans, student loans, and credit cards. So, let's say your monthly gross income is $7,000 like our example above. 28% of $7,000 = $1,960 for housing costs 36% of $7,000 = $2,520 for total monthly debt With monthly debts at $2,500, you're in a good spot because your DTI is under 36%, which shows lenders you can likely handle the mortgage you're applying for. If you're over those targets, don't worry. Paying down existing debts, even a little, can make a noticeable difference. It's one of the quickest ways to increase what you can afford and qualify for better loan terms. How mortgage rates affect home affordability Mortgage interest rates significantly influence how much home you can afford because they directly impact your monthly payments. Even a 1% change in your rate can shift your monthly payments by hundreds of dollars. Buying a home with a high interest rate can add up over time. Imagine you're buying a $300,000 home with a 30-year term, and put $60,000 (20%) down: At a 6% interest, your monthly payment for principal and interest would be $1,439. Increase that rate to 8%, and your payment jumps to $1,761 per month --- that's $322 more per month and $3,864 more per year in mortgage payments. Beyond the rate itself, the type of mortgage you choose matters too. A fixed-rate mortgage offers predictable payments that stay the same for the life of your loan. In contrast, an adjustable-rate mortgage (ARM) typically starts with lower rates, which can boost your buying power --- but they can rise later. Understanding how different mortgage options impact affordability can help you choose the best loan for your budget and tolerance for risk. Always compare mortgage lenders to secure your best possible rate and terms. Start your home buying journey Figuring out how much home you can afford is just the start. Once you have a clear budget in mind, the next move is choosing from the many types of home loans available. At AmeriSave, our Loan Experts help take the pressure off. We'll walk you through your options, explain how different loans stack up, and help you find the best fit for your finances and long-term goals. Knowing what you can afford means you can shop with confidence. Want to see what's possible? Start with a quick preapproval and take one step closer to owning a home.