How much house can I afford?
Define what affordable means to you
How much house you can afford and how much you are comfortable paying for housing each month may be 2 different things. In most cases, your lender will only consider if you are able to repay your mortgage, not whether you will be comfortable repaying your loan. Based on your whole financial picture, think about whether you want to take on the mortgage payment plus the other costs of homeownership such as appliances, repairs, and maintenance.
To figure out what your payment would be for the Principal and Interest on your home visit our online Mortgage Calculators and click on the Home Buying Mortgage Calculator tab
Ask your spouse, a loved one, or friend about what affordable means to you: "What's more important-a bigger home with a larger mortgage or more financial flexibility? How much do we want to budget for all our monthly housing costs, including repairs, furniture, and new appliances? What will a mortgage payment mean for our other financial goals?"
Step 1. Estimate your total monthly home payment by adding up the items below
Your total monthly home payment is more than just your mortgage. How much house you can afford also depends on your total payments towards homeownership each month.
Principal and interest (P&I)
Your principal and interest payment depends on your home loan amount, the interest rate, and the number of years it takes to repay the loan. Principal is the amount you pay each month to reduce the loan balance. Interest is the amount you pay each month to borrow money. You can view our Mortgage Calculators in a separate tab by clicking here.
Mortgage insurance is often required for loans with less than a 20% down payment.
The local assessor or auditor's office can help you estimate property taxes for your area. If you know the yearly amount, divide by 12 and write in the monthly amount.
You can call one or more insurance agents to get an estimate for homes in your area. Ask if flood insurance is required.
Homeowner's association or condominium fees, if they apply
Condominiums and other planned communities often require homeowner's association (HOA) fees.
How Much House Can I afford?
My estimated total monthly home payment:
Step 2. Estimate the percentage of your income spent on your monthly home payment
When determining how much house you can afford lenders calculate your debt to income ratio. This is the percentage of your total monthly income that goes toward your total monthly home payment each month. A mortgage lending rule of thumb is that your total monthly home payment should be around 28% of your total monthly income before taxes. Lenders may approve you for more or for less depending on your overall financial picture.
Percentage of my income going toward my monthly home payment:
The takeaway from all of this is that you don't want to stress out about your mortgage payment each month. Life is full of unforeseen expenses and things happen that are beyond your control. So set a budget that includes a house payment that you can afford comfortably.