Home Affordability Calculator
Estimate how much house you can afford based on your income and debts.
How Much House Can I Afford? A Complete Guide
Determining your home buying budget is the most critical first step in the real estate journey. While a bank might pre-approve you for a high amount, understanding your personal "comfort zone" involves looking at your income, existing debts, and lifestyle goals.
Understanding the 28/36 Rule
Lenders often use the 28/36 rule to determine your creditworthiness:
- 28% Front-End Ratio: Your mortgage payment (including taxes and insurance) should not exceed 28% of your gross monthly income.
- 36% Back-End Ratio: Your total debt payments (mortgage plus credit cards, car loans, student loans) should not exceed 36% of your gross monthly income.
Key Factors That Influence Affordability
1. Gross Annual Income
This is your total income before taxes. Lenders use this figure because it provides a consistent baseline for all applicants, regardless of their specific tax deductions.
2. Monthly Debt Obligations
High monthly debts like student loans or car payments reduce the amount of "room" left in your budget for a mortgage. Reducing these debts before applying for a loan can significantly increase your buying power.
3. Down Payment
The larger your down payment, the lower your loan amount. If you can put down 20%, you also avoid Private Mortgage Insurance (PMI), which further lowers your monthly cost and allows you to afford a higher-priced home.
Real-World Example
Let's look at a realistic scenario for a middle-income family:
- Annual Income: $90,000 ($7,500/month)
- Existing Monthly Debt: $500 (Car + Credit Card)
- Interest Rate: 7%
- Down Payment: $40,000
Using a standard 36% DTI, the total allowed debt is $2,700. Subtracting the $500 existing debt leaves $2,200 for the mortgage. With a 30-year term, this supports a loan of roughly $330,000. Adding the $40,000 down payment, the maximum home price would be approximately $370,000.
Pro Tips for Buyers
Don't forget to account for "hidden costs" like property taxes, homeowners insurance, and maintenance. A good rule of thumb is to set aside 1% of the home's value annually for repairs.