See how much house you can afford with our easy-to-use calculator.
Debt-to-income ratio 36%
*Debt-to-income affects how much you can borrow
The debt-to-income ratio (DTI) is your minimum monthly debt divided by your gross monthly income. The lower your DTI, the more you can borrow and the more options you’ll have.
- 0-36%: Affordable
- 37-42%: Stretching
- 43% or higher: Aggressive
The above estimates do not include amounts for: (1) private mortgage insurance (PMI), which may be required if your down payment is less than 20%; (2) mortgage insurance premiums (MIP), which may be required for FHA-insured loans; or (3) homeowner’s insurance. These costs may be significant and may affect your affordability, debt-to-income ratio or monthly payment.
How much house can I afford?
To know how much house you can afford, an affordability calculator can help.
Getting pre-approved for a loan can help you find out how much you’re qualified to borrow. But remember that when it comes to affordability, the amount a lender will lend you and the amount you can comfortably pay without stretching your budget too thin could be very different. One influential factor in determining the amount of money you can borrow on a home loan is your debt-to-income (DTI) ratio. It is recommended that your DTI should be less than 36% to ensure that you have some padding on your monthly spend. A good DTI greatly impacts your ability to get pre-qualified for a mortgage. Ultimately, you have the final say in what you’re comfortable spending on a home. A lender’s assessment is important, but in the end, you’ll need to take a look at your income, expenses and savings priorities to truly understand what fits comfortably within your budget.
While every person’s situation is different (and some loans may have different guidelines), here are the generally recommended guidelines based on your gross monthly income (that’s before taxes):
Your mortgage payment should be 28% or less.
- Your debt-to-income ratio (DTI) should be 36% or less.
- Your housing expenses should be 29% or less. This is for things like insurance, taxes, maintenance, and repairs.
- You should have three months of housing payments and expenses saved up.
Factors that affect your affordability
How much you can afford to spend on a home depends on several factors, including these primary factors: you and your co-borrower’s annual income, down payment, and location (which is a primary factor in determining your interest rate and property tax).
This one’s a no-brainer. Income should include your co-borrower’s income if you’re buying the home together.
Your debts directly affect your affordability, since it’s based on the ratio between what you earn (income) and what you owe (debts).
Believe it or not, the interest rate you pay can make a big difference in how much home you can afford. Rates vary based on your location, which can affect your affordability.
Your credit score plays a big role in the interest rate you’ll get for your loan.
Your down payment plays a big part in your affordability. The more you put down, the lower your monthly payment will be.
Homeownership comes with costs that rentals do not. So remember to put extra money away for repairs and maintenance.
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