When determining how expensive a home one can afford, the calculation typically involves several key factors: monthly income, monthly debts, savings for a down payment, mortgage interest rates, and other housing-related expenses such as property taxes and homeowners insurance. A common guideline used is the 28/36 rule, where no more than 28% of gross monthly income should go toward housing costs and no more than 36% toward total debt payments including the mortgage. To estimate home affordability:
- Calculate your monthly gross income.
- Identify your monthly debts (such as car loans, credit card payments).
- Use the 36% debt-to-income rule to find the maximum affordable monthly mortgage payment.
- Consider your available down payment.
- Estimate mortgage interest rates and calculate how much loan this payment corresponds to.
- Add in estimated property taxes, insurance, and possibly HOA fees.
For example, a person with $6,000 monthly pre-tax income and $1,200 monthly debts might afford a maximum mortgage payment of about $960 (36% rule minus debts), translating roughly to a home priced near $205,000 depending on down payment and interest rates. If the person has no existing debts, the affordable home price can rise substantially (e.g., to around $462,000 with $6,000 monthly income).
Down payment size and credit score also significantly impact affordability—lower down payments mean higher loan amounts and mortgage payments, and better credit scores usually grant better interest rates. Several online calculators like Zillow, NerdWallet, and SmartAsset allow input of income, debts, savings, interest rates, and location specifics to get personalized house affordability estimates. In summary, the price of a home you can afford depends on income, debts, down payment, credit, and current interest rates, with the common recommendation to keep total housing costs under 28%-36% of your gross income.
