Find out how much house you can afford
Our home affordability calculator helps you answer the question, “how much house can I afford?” By entering some basic, but important financial some information, you’ll get a recommendation for a maximum monthly mortgage payment and a maximum home value. You can use these as a guide as you shop for your next home and prepare for the mortgage application process.
For an accurate recommendation, be sure to have the following:
Your gross annual income
Your expected down payment for your home purchase
Your monthly debt payments — include minimum payment amounts for student loans, car loans, credit card balance, alimony and other debts.
Your expected loan term (e.g., 15-years, 30-years) and mortgage interest rate
The home affordability calculator will also estimate your annual homeowner’s insurance costs and property tax percentage and your actual costs may be higher. You can update these for a more customized recommendation.
As a demonstration, our calculator provides the following levels of mortgage affordability. This assumes a 30-year loan with a 3.5% interest rate. Private mortgage insurance is not factored.
Factors that impact how much home you can afford
Your annual income
A lender will first want to know that you earn enough to make your monthly mortgage payment. You can get your income from your most recent W-2 statement.
Your total monthly debts
Your debts offset your income. These include minimum monthly payments on any loans (for example, car loan, student loan, or personal loan), along with your monthly minimum payment for any credit card debt. Your debt-to-income (DTI) ratio is a critical factor in how much loan and the types of offers you will get from a lender.
Your down payment
This is the amount of money you plan to pay upfront towards the purchase of your home. Lenders provide more favorable terms — helping you afford more — to those able to make a down payment of at least 20%.
The lender’s interest rate
This is a percentage of the mortgage loan the borrower pays to the lender each month for the loan balance that was financed. The lower the interest rate, the more home you can typically afford. Interest rates fluctuate with global and US financial markets, but borrower rates are locked based on the term of the loan they agreed to with the lender. Borrowers with better credit scores and lower debt-to-income ratios can qualify for a lower interest rate.
The term of the loan
This is the amount of time you have to pay off the mortgage. Typical terms are 15 or 30-years. A longer loan term will usually result in a lower monthly payment as payments are spread out over a longer period of time.
Property taxes are levied by your local county or municipality government and are based on its assessment of your home’s value.
Two types of insurance may be factored into your ability to afford a home:
Private mortgage insurance (PMI) is purchased by the lender at the inception of the mortgage, with the cost passed on to you, if you make a small down payment. To avoid paying PMI, you typically need to make a down payment above 20% of the home’s purchase price.
Homeowners insurance is purchased by you. It protects you financially if your home is damaged or destroyed by fire or other catastrophic events. It also protects you if you’re held liable for someone’s injury on your property.
Homeowners association (HOA) dues
These are applicable if you’re purchasing a home such as a condominium or in a neighborhood where an HOA is responsible for maintenance and repairs to common areas, such as pools, parks and nature areas.
Mortgage affordability rules of thumb
Buying a home is a great responsibility, requiring a lot of financial discipline. It’s important to not only use our home affordability calculator to figure out what you can afford, but to consult with a lender for a custom quote.
In general, there are several “rules of thumb” that can give you a quick idea if you’re financially ready for homeownership. Knowing how much house you could potentially afford can help you manage your own expectations and plan with confidence before you head down the purchase path.
The 28% rule
This rule states that you should spend no more than 28% of your gross monthly income on your monthly mortgage payment (mortgage principal, interest, taxes, and insurance). So, if you earn $7,500 per month gross, you should spend no more than $2,100 per month on mortgage payments.
The 35/45 rule
This rule states that your total monthly debt, including your mortgage payment, shouldn’t be more than 35% of your pre-tax income or more than 45% of your after-tax income. So, if you earn $7,500 per month pre-tax, your total debt (mortgage, plus loan payments) shouldn’t exceed $2625.
A variation of this rule uses 45% of your post-tax income. So, if you earn $5,500 per month post-tax, your total monthly debt shouldn’t exceed $2,475.
The 25% rule
Similar, though a bit more restrictive than the 35/45 rule, this states that your total monthly debt should be no more than 25% of your after-tax income. So, if you earn $5,500 per month post-tax, your total monthly debt, including mortgage, shouldn’t exceed $1,375.
The 2.5X rule
This rule states that you should look for a home priced no more than 2.5 times your combined annual household income. So, if your household income is $100,000, look for a home in the $250,000 range.
Frequently asked questions about home affordability
How much home can I afford?
How much home you can afford will depend on factors such as your monthly income and monthly debt, along with the interest rate available to you based on your credit score, credit history, personal assets and other financial measures. Use our affordability calculator to get a customized estimate on what you could afford.
How do I get the best interest rate?
When calculating what interest rate to offer, your lender will look at your debt-to-income ratio, credit history, employment history, amount of savings, and several other factors.
How do I avoid paying private mortgage insurance (PMI)?
In most cases, making a down payment of at least 20% of the home’s purchase price will help you avoid paying PMI in your monthly mortgage payment.
How do I calculate my monthly debt?
Add up the monthly minimum payment for your car loans, student loans, credit cards, alimony & child support and any other personal loans that may apply to you and/or your co-applicant (if applicable).
What are closing costs?
Closing costs are fees related to a real estate transaction. They include things such as loan origination fees, appraisal fees, title searches and insurance, surveys, recording fees, closing attorney’s fees and taxes. They typically run anywhere from 3% to 5% of the amount of the loan. Checkout this article to better understand closing costs.
This information is provided for general informational purposes. All transactions are subject to credit approval. Contact a loan officer for a custom quote.