how much of a house can i afford

To determine how much house you can afford, several key financial factors are considered:

Key Factors in Affordability

• Income: Your gross (pre-tax) monthly or annual income is the starting point.
• Debt: Monthly debt payments such as car loans, credit cards, and student loans affect affordability.
• Down Payment: The amount of cash you can put down upfront reduces the loan amount needed.
• Interest Rate: Lower mortgage interest rates reduce monthly payments, increasing affordability.
• Other Housing Costs: Property taxes, homeowner’s insurance, and possibly HOA fees also impact monthly costs.

Common Rules of Thumb

• 28/36 Rule: Suggests you should spend no more than 28% of your gross monthly income on housing costs and no more than 36% on total debt payments (including mortgage and other debts)

• 36/43 Rule: Some lenders use a slightly higher threshold, allowing up to 36% of income for mortgage costs and up to 43% for total debt payments

• FHA Loan Guidelines: FHA loans often use a 31/43 rule, with housing costs capped at 31% of income and total debts at 43%

How to Calculate

1. Calculate 28% (or 31-36% depending on loan type) of your gross monthly income to estimate your maximum monthly housing payment.
2. Subtract your other monthly debt payments to see what mortgage payment fits within your total debt limit.
3. Use online affordability calculators (from NerdWallet, Zillow, Chase, Wells Fargo, etc.) to input your income, debts, down payment, and expected interest rate to get a home price estimate

Example

If you earn $5,500 per month:

• Max housing cost = $5,500 x 0.28 = $1,540 per month
• If you have $500 in other debts, your total debt payments should not exceed $5,500 x 0.36 = $1,980
• So, mortgage + other debts ≤ $1,980, meaning mortgage payment ≤ $1,480

Additional Considerations

• Getting pre-qualified or pre-approved by a lender can provide a more precise affordability figure based on your credit and financial profile

• Your personal savings goals, lifestyle, and comfort with monthly expenses should also factor into your decision.
• Down payment size and credit score affect loan options and interest rates, influencing affordability

In summary, you can afford a house where your monthly housing costs (mortgage, taxes, insurance) are about 28-36% of your gross monthly income, and your total monthly debt payments do not exceed 36-43% of your income. Using online calculators with your specific financial details will give you a tailored estimate of the home price you can afford.