How Much House Can I Afford?

Determining how much house you can afford is one of the most important steps in the home buying process. Lenders use specific ratios to determine your maximum loan amount, and understanding these rules helps you set realistic expectations before you start house hunting.

The 28/36 Rule Explained

The 28/36 rule is the industry standard used by most mortgage lenders. It states that you should spend no more than 28% of your gross monthly income on housing expenses (mortgage payment, property taxes, and insurance), and no more than 36% of your gross monthly income on total debt payments (housing + car loans + student loans + credit cards).

Factors That Affect Home Affordability

• Income: Higher income means you can qualify for a larger mortgage.
• Debt-to-income ratio: Lower existing debts increase your borrowing power.
• Down payment: A larger down payment reduces your loan amount and may eliminate PMI.
• Interest rates: Even a 0.5% difference significantly impacts affordability.
• Credit score: Better credit scores qualify for lower interest rates.
• Property taxes: These vary significantly by location and reduce your buying power.

Tips to Afford More House

If the calculator shows a lower number than expected, consider these strategies: pay down existing debts to lower your DTI ratio, save a larger down payment, improve your credit score to get a better interest rate, consider a 30-year term instead of 15 for lower monthly payments, or look in areas with lower property tax rates.