How Much House Can I Afford?

Buying a home is likely the largest financial decision you’ll ever make. Understanding how much house you can afford helps you find a home that fits your budget without stretching your finances to the breaking point. Whether you’re a first-time homebuyer or looking to upgrade, knowing your price range is the first step in your home-buying journey.

Key Takeaways

• Finding your ideal price range requires balancing what lenders will approve against what fits your financial situation.
• While lenders may approve you for a certain amount, your personal comfort level might be lower.
• A realistic housing budget accounts for all homeownership costs beyond just the mortgage payment, including taxes, insurance, and maintenance.
• Using the 28/36 rule as a starting point can help establish sustainable housing costs relative to your income and existing debt.

Table of Contents

The Costs of Homeownership

Down Payment

The down payment is the portion of the purchase price you pay upfront. In the US, down payments typically range from 3.5% to 20% of the home’s purchase price, depending on the loan type.

A 20% down payment allows you to avoid private mortgage insurance (PMI) on conventional loans, potentially saving you hundreds of dollars monthly. However, many first-time homebuyers put down less. FHA loans require as little as 3.5%, while some conventional loans accept 3% down, and VA loans may require no down payment at all for eligible veterans.

Remember that a larger down payment results in a smaller loan amount, lower monthly payments, and less interest paid over the life of your loan.

Mortgage

Your mortgage is a long-term loan used to finance your home purchase. The total cost includes principal (the amount borrowed) and interest (what you pay the lender for providing the loan). Your monthly payment will depend on your loan amount, interest rate, and term length.

Mortgages come in various terms, with 30-year and 15-year fixed-rate loans being the most common. While 30-year mortgages offer lower monthly payments, 15-year loans typically feature lower interest rates and build equity faster.

Home Insurance

Homeowners insurance protects your investment from disasters, theft, and liability. Mortgage lenders require it to protect their collateral.

Annual premiums vary based on your location, home value, coverage levels, deductible, and even your credit score. Homes in disaster-prone areas (flood zones, hurricane regions, or wildfire territories) face higher premiums.

Like property taxes, insurance is often paid monthly into your escrow account as part of your mortgage payment.

Maintenance

The often-overlooked reality of homeownership is ongoing maintenance. Unlike renting, there’s no landlord to call when something breaks.

It is generally recommended to budget about 1-3% of your home’s value annually for maintenance and repairs. Regular maintenance includes HVAC servicing, gutter cleaning, lawn care, appliance repairs, and inevitable replacements for major systems such as water heaters, air conditioners, and roofing.

Extra Fees

Beyond the standard costs, many homeowners face additional expenses that can impact monthly budgets.

Homeowners Association (HOA) fees are common in planned communities, condominiums, and some neighborhoods. These monthly or quarterly fees cover shared amenities, common-area maintenance, and sometimes services such as trash removal or cable TV.

Condo owners typically pay fees covering building insurance, maintenance of common areas, and contributions to reserve funds for major repairs. Special assessments may also be levied when major repairs exceed reserve funds.

Other potential fees include city assessments for infrastructure improvements, pest control services, alarm monitoring, and private mortgage insurance (PMI) if your down payment is less than 20%.

The Basics of Housing Affordability

The 28/36 Rule for Housing Affordability

The 28/36 rule serves as the fundamental guideline for housing affordability. According to this principle, you should spend no more than 28% of your gross monthly income on housing expenses (including mortgage, taxes, insurance, and HOA fees) and no more than 36% on total debt (housing plus car loans, student loans, credit cards, etc.).

For example, if your household earns $6,000 monthly before taxes, your housing costs should ideally stay below $1,680 (28% of $6,000), and your total monthly debt payments, including housing, shouldn’t exceed $2,160 (36% of $6,000).

This rule helps create a sustainable budget that allows for saving, investing, and managing unexpected expenses without becoming financially strained by housing costs.

How Lenders Calculate Your Housing Budget

Lenders use debt-to-income (DTI) ratios to determine how much mortgage you qualify for. They typically allow a maximum 43% DTI for conventional loans, though some loan programs permit higher ratios.

When calculating your maximum loan amount, lenders consider your gross income, current debts, estimated property taxes and insurance for the potential property, and the mortgage interest rate. They’ll also examine your credit history, employment stability, and available assets.

Key Factors Affecting Your Home Buying Budget

Income

Your income is the foundation of your home-buying power. Lenders typically consider your gross monthly income (before taxes and deductions) when determining how much mortgage you qualify for.

Income stability matters as much as the amount. Lenders prefer borrowers with a steady employment history (typically at least two years in the same field). Self-employed buyers or those with variable income (commissions, bonuses, freelance work) may need to provide additional documentation showing income consistency.

Remember that housing affordability calculations should include all reliable income sources, including:

• Regular salary or wages
• Consistent overtime or bonuses
• Alimony or child support (if regular and continuing)
• Investment income
• Retirement distributions

If you anticipate significant income changes (career switches, retirement, family leave) in the near future, factor these into your personal comfort level for mortgage payments.

Down Payment

Your down payment amount affects multiple aspects of your home-buying budget. Beyond determining your initial loan amount, it influences your interest rate, monthly payment, and whether you’ll pay private mortgage insurance.

For conventional loans, putting 20% down helps you avoid PMI. However, waiting to save 20% isn’t always practical in appreciating markets where home prices might rise faster than your savings.

Government-backed loans offer lower down payment options; FHA loans require as little as 3.5%, while VA and USDA loans may require zero down payment for qualified borrowers. These programs make homeownership more accessible.

Your down payment source matters too. Lenders look favorably on funds you’ve saved yourself versus gift money or loans against retirement accounts.

Debt

Existing debt obligations impact how much mortgage you can qualify for. Lenders calculate your debt-to-income ratio by adding up minimum monthly payments on:

• Car loans and leases
• Student loans
• Credit card minimum payments
• Personal loans
• Existing mortgages or rent
• Child support or alimony

Higher debt levels reduce your borrowing capacity for a home. Paying down high-interest debt before applying for a mortgage not only improves your DTI ratio but also frees up monthly cash flow for homeownership expenses.

Some debts impact affordability more than others. Credit card debt with high interest rates is looked at differently from student loans or low-interest car loans. If you choose to pay down some debt before buying a house, choose the type of debt wisely.

Credit Score

Your credit score influences both loan approval and the interest rate you’ll pay. Most conventional loans require a minimum score of 620, while FHA loans may accept scores as low as 580.

Improving your credit score before applying for a mortgage can expand your housing budget without increasing your income. Simple strategies include paying bills on time, reducing credit card balances, and avoiding new credit applications in the months before your home search.

How to Calculate Your Home Affordability

1. Gather your financial information, including your gross monthly income, all monthly debt payments, savings available for down payment and closing costs, and your credit score.
2. Calculate your maximum housing payment using the 28/36 rule. Multiply your gross monthly income by 0.28 to find your housing payment ceiling. Then multiply your income by 0.36 and subtract your existing monthly debt payments to confirm your total DTI remains acceptable.
3. Factor in all housing costs, not just the mortgage payment. Add estimated property taxes, homeowners’ insurance, and any HOA fees to your potential mortgage payment.
4. Use a mortgage calculator to determine how much house you can afford based on your maximum monthly payment, current interest rates, and planned down payment. Remember to include PMI if your down payment will be less than 20%.
5. Subtract other homeownership costs from your budget. Set aside 1-3% of the home’s value annually for maintenance and repairs, plus monthly utilities appropriate for your target home size and region.
6. Test different scenarios by adjusting your down payment amount, loan term, or target price range to see how each change affects affordability. This helps identify which factors provide the most leverage for your situation.
7. Consider future life changes that might impact your income or expenses, such as family planning, career changes, or retirement goals. A comfortable mortgage payment leaves room for these eventualities.
8. Evaluate your personal comfort level with the resulting payment to see if you are financially ready to buy a house.

Loan Options and Their Impact on Affordability

Conventional Loans

Conventional loans are mortgage loans that aren’t guaranteed by government agencies. They typically follow guidelines set by Fannie Mae and Freddie Mac and are the most common type of mortgage.

Borrowers with excellent credit profiles and 20% down payments usually secure the best interest rates. Those putting down less than 20% must pay private mortgage insurance until they reach 20% equity.

Conventional loans offer flexibility, with terms ranging from up to 30 years and both fixed- and adjustable-rate options. For those planning to stay in their homes long-term, fixed-rate mortgages provide payment stability, while ARMs might offer lower initial rates for buyers planning to move or refinance within a few years.

VA And USDA Loans

Veterans Affairs (VA) and U.S. Department of Agriculture (USDA) loans offer unique advantages for eligible borrowers, often making homeownership possible with minimal upfront costs.

VA loans serve active-duty service members, veterans, and eligible surviving spouses. Their primary benefit is 100% financing with no down payment required. They also eliminate the need for mortgage insurance, though they do charge a one-time funding fee.

USDA loans also offer 100% financing for homes in designated rural and suburban areas. They’re designed for low to moderate-income households and include both income and location eligibility requirements. Like FHA loans, USDA mortgages require mortgage insurance, but at lower rates. This can make them more affordable in the long term than FHA options for those who qualify.

How to Budget for a House

1. Track your current spending for at least three months. Categorize expenses to identify discretionary spending that could be redirected toward housing costs or reduced to improve your debt-to-income ratio.
2. Calculate how much you can comfortably allocate to housing. Rather than starting with a home price and figuring out how to afford it, start with what fits your budget. Include all housing-related expenses, not just the mortgage.
3. Build an emergency fund specifically for homeownership. Set aside 3-6 months of housing expenses plus additional savings for anticipated maintenance and unexpected repairs.
4. Determine your down payment strategy by assessing available savings, potential gift funds, and whether you’ll use down payment assistance programs. Consider the trade-offs between a larger down payment and maintaining emergency reserves.
5. Create a separate savings account for closing costs, which typically range from 2-5% of the loan amount.
6. Simulate homeownership by “practicing” your mortgage payment. If your expected housing payment is $500 more than your current rent, start setting aside that additional amount monthly to build savings while testing your budget’s resilience.
7. Review and reduce existing debt where possible. Paying off or consolidating high-interest debt can improve both your debt-to-income ratio and monthly cash flow.
8. Research potential tax benefits, including mortgage interest and property tax deductions, but don’t count on tax savings to make an unaffordable home fit your budget.
9. Build in a buffer for lifestyle changes and unexpected expenses. The most sustainable housing budget allows you to maintain savings contributions, emergency funds, and some discretionary spending after covering all housing costs.

FAQs About Home Affordability

What Is The 28/36 Rule?

The 28/36 rule is a traditional guideline lenders use to assess mortgage affordability. It suggests limiting housing costs to no more than 28% of your gross monthly income and total debt payments (including housing costs) to no more than 36% of your gross monthly income.

How Much Down Payment Should I Save?

The ideal down payment amount depends on your financial situation, housing market, and long-term goals. While 20% has traditionally been considered standard for conventional loans to avoid private mortgage insurance, many buyers successfully purchase homes with less.

Consider the trade-offs: A larger down payment reduces your loan amount, lowers your monthly payments, and saves you interest and potential PMI costs. However, depleting savings for a down payment might leave you vulnerable to emergencies.

A balanced approach might be putting down enough to get a favorable interest rate while maintaining adequate emergency savings and avoiding liquidating retirement accounts or taking on high-interest debt for your down payment.

How Does Credit Score Affect Home Affordability?

Your credit score influences both loan approval and interest rates, directly impacting how much house you can afford. Most conventional loans require a minimum score of 620, while FHA loans may accept scores as low as 580.

The effect of credit scores on interest rates is substantial. Borrowers with excellent scores (760+) generally receive rates lower than those with fair scores (620-639). Beyond interest rates, credit scores affect approval for larger loan amounts and more favorable terms. Lenders may impose stricter debt-to-income requirements on borrowers with lower scores, further limiting buying power.

What Debt Should I Pay Off Before Buying?

Focus first on high-interest debt, particularly credit cards. Paying down revolving debt, such as credit card debt, often provides more qualification benefits than installment loans (student loans, car payments) because revolving balances affect both your debt-to-income ratio and credit utilization. Small debts with relatively large monthly payments can also be good targets.

While eliminating auto loans or student debt before home buying isn’t always practical, reducing balances to lower monthly payments can improve your housing budget. Consider if refinancing these debts to lower payments (even with longer terms) might be worthwhile during your home search.

Avoid the temptation to close paid-off credit accounts, as this can reduce your credit history length and available credit, potentially lowering your score temporarily. Instead, keep accounts open but maintain zero balances.

How Do Interest Rates Affect My Housing Budget?

Interest rates have a profound impact on home affordability, often more so than modest price changes. When rates rise by just one percentage point, your purchasing power can decrease by approximately 10%. Interest rates also affect the total cost of homeownership over time.

Rate fluctuations affect adjustable-rate mortgages even more directly, potentially changing your payment amount during the loan term. Fixed-rate mortgages provide payment stability regardless of future rate movements.

When interest rates are trending upward, acting sooner rather than waiting might make financial sense, even if it means buying a slightly less expensive home. Conversely, in a falling-rate environment, waiting might increase your purchasing power.

How Much Income to Afford a $300K House?

Using a how much house can I afford calculator and the 28/36 rule as a guideline, let’s assume a 10% down payment ($30,000), a 30-year fixed mortgage at 6% interest, property taxes at 1.2% annually, and home insurance at $1,200 yearly. Your principal and interest would be approximately $1,618 per month, with taxes and insurance adding about $425, for a total of around $2,043 per month in housing costs.

For this payment to stay within 28% of your gross income, you would need an annual income of approximately $87,500 ($7,300 monthly). This calculation doesn’t include potential PMI costs.

With a 20% down payment ($60,000), the same house would require approximately $77,500 in annual income, as you’d avoid PMI and have a lower base loan amount.

How Much House Can I Afford with a 90K Salary?

Following the 28/36 rule and using a how much house can I afford calculator, your housing costs should remain under $2,100 monthly (28% of $7,500). Assuming you have minimal existing debt ($500 monthly), a good credit score (700+), and a 10% down payment, you could potentially afford a home in the $350,000-$400,000 range. This estimate assumes a 30-year fixed mortgage at 6% interest, average property taxes (1.2%), and typical insurance costs.

With a 20% down payment, you might afford closer to $425,000, as you’d avoid PMI and have a lower loan-to-value ratio, potentially qualifying for better interest rates.

In high-cost markets like San Francisco or New York, this salary might limit you to condos or homes in distant suburbs, whereas in more affordable regions, it could buy single-family homes in desirable neighborhoods.