- The best way to determine how much house you can afford is by working backward from your current budget.
- Look at how much you spend each month and see how a mortgage payment could fit into that.
- Don't forget about other costs like property taxes, insurance, home maintenance, and repairs.
Figuring out how much house you can afford isn't always as straightforward as it seems. Between 28/36 rule is a popular guideline that can help homebuyers figure out how much house they can afford. To follow this rule, homebuyers should aim to spend no more than 28% of their gross monthly income on housing costs, and a maximum of 36% of their income on all their debts combined (including housing costs).
This rule can get you in the ballpark of what a reasonable homebuying budget might look like, but try to avoid relying solely on rules of thumb like this.
Brian Walsh, CFP and head of advice and planning at 30-year mortgage rates are hovering around 7%, you could borrow a mortgage of around $300,000. But if rates drop to 6%, you could borrow almost $35,000 more and keep that same monthly payment.
No matter how rates are currently trending, shopping around can help ensure you get the best overall deal. Rates can vary quite a bit from lender to lender, so getting quotes from at least three different mortgage lenders can save you a lot of money in the long term.
"Small differences in the loan that you secure, whether it be interest rate, closing costs, origination fees, different things like that, they can really, really add up to big numbers," Walsh says.
Step 5: Figure out your other costs
When you have a mortgage, you won't just be responsible for paying the principal and interest each month. Your mortgage payment will also include property taxes, improve your credit score, and it will also lower your DTI — two things that can help you get a better mortgage rate and lower your borrowing costs.
Consider a cosigner
If you can afford a monthly mortgage payment but are having trouble qualifying for a mortgage, you might have better luck getting someone to cosign the loan with you.
Make sure you both understand the risks of this, though. If you suddenly aren't able to pay the mortgage, the responsibility for the loan will fall to the cosigner.
Shop around
Don't go with the first lender that offers you a mortgage. Lenders all offer slightly different rates, and the only way to ensure you're getting the best rate available is to compare offers from a few different companies. Be sure to consider both rates and fees, since lender fees can impact how much cash you'll need to bring to the closing table.
The real estate agent what areas near you are more affordable.
Look at starter homes
As a first-time buyer, you might not be able to afford as large a house as you initially envisioned. Your budget may limit you to starter homes, which are smaller and often have only one or two bedrooms. Then, as you gain equity in your home and grow your income, you may be able to afford a larger home later on.
How much house can I afford based on my salary?
How much house can I afford on a $50,000 salary? Or a $100,000 salary?
People often ask how much they can afford based on the amount they earn each year. But as we've seen, figuring out how much house you can afford just isn't that simple, because your debts, savings, and mortgage rate also factor in.
Say your salary is $100,000, or a little more than $8,300 a month. If you have no other debts and you can get a mortgage with a DTI of 50%, you could potentially afford a monthly mortgage payment that's around $4,150. How much house is that? It depends on where mortgage rates are, how much you put down, and what your tax and insurance costs are.
For example, with a 3% down payment and a 7% mortgage rate, a $600,000 house would come with a monthly payment of $3,872. That fits your budget with room to spare, right? That doesn't factor in taxes and insurance, though. Let's say your property taxes and homeowners insurance both cost $100 a month. And because you put down less than 20%, you'll need to pay for mortgage insurance as well, so that's another $30. When all is said and done, that's a monthly payment of $4,102 — right at the edge of affordability.
But if you have additional debts, those will limit how much you can borrow. And if you have a lot of other monthly expenses you aren't willing to give up, you probably shouldn't push your DTI that high.
If you're struggling with the math, it might be helpful to talk to a mortgage lender to get an estimate of what they think you can afford and see how that monthly payment would fit into your current budget.
How much house can I afford FAQs
What percentage of my income should I spend on a house?
A common rule of thumb is not to spend more than 28% of your income on housing costs, but it's more reliable to look at your individual budget to see how much you can realistically afford.
Can I afford a house?
Whether you can afford a house depends on your income, debts, savings, and overall budget. If you have enough money to cover your down payment and closing costs and feel comfortable taking on a mortgage payment (plus other homeownership-related costs), you may be able to afford to buy a house.
How does debt affect how much house I can afford?
The more debt you have, the less house you'll be able to afford. Mortgage lenders decide how much you can borrow based on how much debt you owe relative to your income.
How much house can I afford with a VA loan?
VA loans don't require a down payment, so how much house you can afford with one of these loans depends on the size of the monthly payment you can handle, since your entire home purchase will be financed (unless you elect to make a down payment).
