How Much House Can You Really Afford Today?

If you’re thinking about buying a home, one of the most important questions you need to answer is: “How much house can I afford?” The answer isn’t always straightforward. Your income, debts, credit score, down payment, and local market conditions all play a role in determining the price range you should be looking at.

The 28/36 Rule

A simple way to answer, “How much can I afford for a house?” is to apply the 28/36 rule. This basic financial guideline recommends that you spend no more than 28% of your gross monthly income on your housing costs (including mortgage payments, property taxes, insurance, and HOA fees if applicable) and no more than 36% on total monthly debt payments (including your mortgage, car loans, student loans, and credit cards).

Is this rule set in stone? No. Although many lenders use the 28/36 rule to determine how much you can afford to spend on housing, think of the rule as a starting point rather than a hard limit. Many lenders now approve buyers with higher debt-to-income ratios, especially if they have strong credit or a solid down payment.

Additional Factors Affecting How Much House You Can Afford

Your income and outstanding debt are two critical figures in determining “How much house can I afford?”, but there are other factors to take into account:

Your Down Payment Size

A larger down payment affects how much house you can afford in several important ways:

• It reduces the amount you need to borrow, meaning that there’s more room in your budget for a larger house. Essentially, you can get more house while keeping your monthly payments the same.
• If your down payment is 20% or more, you won’t need private mortgage insurance (PMI), so you’ll have even more room in your budget per month.
• Lenders may offer you a lower interest rate if you have a larger down payment. The savings in interest frees up money for a more expensive house.
• It can make you a more competitive bidder; sellers often prefer offers with larger down payments because the deals are less likely to fall through due to financing issues.

Interest Rates

Even a small change in mortgage rates can affect how much home you can afford. When interest rates are high, you may have to look at lower-priced homes. Depending on the economic outlook, it can make sense to wait until rates are lower. When asking “How much house can I afford?” keep an eye on expert predictions about upcoming changes.

Loan Type

FHA, VA, and USDA loans all have down payment requirements and loan terms that influence affordability. For example, FHA loans allow for lower down payments but also require PMI. Your lender can help you understand how your loan type could affect the amount you can afford to spend on a home.

Credit Score

Higher credit scores often mean better interest rates, which lowers your overall monthly costs, putting a more expensive home within your reach. If your credit score is low, consider working to improve it; that will enable you to afford more house.

Local Market Considerations

In markets like San Francisco or New York, even a $100K salary may not go far, while the same income could buy a spacious home in a smaller city or rural area. Property taxes, insurance rates, and utility costs also vary widely by location and can significantly impact your monthly budget.

Should You Aim for the Top of Your Budget?

Just because a lender approves you for a certain amount doesn’t mean you should spend it all. Stretching to the top of your budget can leave you house poor, with little left over for savings, emergencies, or vacations. Some people are comfortable being house poor, but that may not be for you. Carefully consider the lifestyle factors that are most important to you when asking, “How much house can I afford?”

Using a Home Affordability Calculator

A reliable “how much house can I afford calculator” will give you an estimate based on your income, down payment, credit score, and other debts. In a calculator, you can also play around with the numbers to see how things like a better credit score and a larger down payment can affect your budget.

Be sure to factor in the extra costs of homeownership, including

• Property taxes
• Homeowners insurance
• Utilities and maintenance, including internet and cable charges
• HOA fees (if applicable)
• Closing costs and moving expenses

How Much House Can I Afford With a $100K Salary?

Based on the 28/36 rule, with a $100,000 a year salary, you could afford:

• Monthly housing budget: Around $2,333 (28% of $8,333/month)
• Potential maximum monthly debt payments: Up to $3,000

Assuming you have good credit, low debt, and a reasonably large down payment, buyers with a $100K income might qualify for a home priced at $300,000 to $450,000. Keep in mind that your range can vary significantly depending on interest rates, property taxes, and your down payment amount.

The answer to “How much house can I afford?” depends on your income, debts, lifestyle, and the local market. By using up-to-date guidelines, online calculators, and advice from an experienced real estate agent, along with guidance from a reputable lender, you can identify the price range that’s right for you right now.