How much house loan you can afford depends mainly on your income, monthly debts, down payment, and the debt-to-income ratio (DTI) lenders use to evaluate your loan eligibility. Here are key points to calculate how much house loan you can afford:
- Lenders typically want your monthly mortgage payment (including principal, interest, taxes, and insurance) to be no more than about 28% to 31% of your gross monthly income (this is called the front-end ratio).
- Your total monthly debt payments (including mortgage, car loans, credit cards, etc.) should generally be below 36% to 43% of your gross monthly income (this is the back-end ratio or overall DTI).
- For example, if you earn $3,000 a month, your monthly housing payment ideally should be no more than $900 to $1,080 (about 30%-36% of income), and total debt payments no more than about $1,290 to $1,290 (43% of income).
- FHA loans typically allow mortgage payments up to 31% and total debt up to 43%. VA loans allow up to 41% total debt.
- Your down payment size affects how much loan you need and may affect loan qualification.
- Interest rate and loan term also influence how much loan the monthly payment covers.
A typical rule of thumb is the 28/36 rule:
- 28% of gross income goes to housing costs.
- 36% or less goes to total debt payments.
You can use online mortgage affordability calculators to plug in your income, debts, down payment, and get an estimate of how much loan and house price you can afford. These calculators also consider additional costs like property taxes, insurance, and HOA fees if applicable. If you provide your monthly income, monthly debts, and down payment amount, I can help estimate how much house loan you can afford using those details. Otherwise, consider the income ratios (28%-31% for housing, 36%-43% total debts) as a starting guideline to evaluate your affordability.
