Mortgages

How much house can I afford? – USA TODAY Blueprint


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Figuring out how much house you can afford is an important step on the way to home ownership. By reviewing your income, expenses and down payment, you can come up with a realistic price point and avoid overextending your finances — allowing you to go into the homebuying process with confidence.

How to calculate how much house you can afford

This home affordability calculator can help you figure out how much house you can afford to purchase based on both the total cost of the home and your monthly mortgage payment. 

Here’s how to use the calculator: 

  1. Enter your income. This should be your annual, pre-tax household income.
  2. Enter your loan details. Next, you’ll need to provide your desired mortgage repayment term (30 years is most common), down payment amount and mortgage interest rate. If you’re not sure what your mortgage rate will be, you can fill in the current average mortgage rate.
  3. Enter your monthly debt payments. Then you’ll fill out the total amount you pay toward any debt each month. For example, this might include payments toward student loans, your car, credit cards and more.
  4. Review your other mortgage costs. Estimates based on your location will be added for your monthly property tax, homeowners insurance and any homeowners association (HOA) fees you’ll be responsible for. But if you know exactly what these costs will be, you can also enter them yourself. 
  5. Hit “calculate.” The calculator will show you the maximum home price and monthly payment you can reasonably afford — including the principal and interest on your mortgage as well as property tax, homeowners insurance and any HOA fees you’ll have to cover. 

Tip: Expand the calculator to see more details like your predicted amortization schedule — that is, how your monthly payments will be applied to your mortgage and interest charges over time. 

Other home costs to consider

When determining how much house you can afford, remember that your mortgage isn’t the only cost you’ll need to account for. Here are some other home expenses to factor in: 

  • Down payment: Most conventional mortgage lenders require a down payment of at least 3%, though you’ll need to put down 20% if you want to avoid private mortgage insurance (PMI). Down payment and mortgage insurance requirements for other types of home loans can vary.
  • Closing costs: These usually range from 2% to 5% of your loan amount. You may need to pay this amount upfront, though it’s sometimes possible to roll it into your home loan. 
  • Property taxes: Rates on property taxes typically range from 0.18% to 1.89% of a home’s appraised market value, depending on your state.
  • Homeowners insurance: While insurance costs vary by location, a local insurance company could give you an estimate of what you might pay to insure your new home. 
  • Private mortgage insurance (PMI): If your down payment is lower than 20% on a conventional mortgage, you’ll typically have to pay PMI. This usually costs 0.1% to 2% of your loan amount each year.
  • HOA fees: If your home is part of a homeowners association, it will come with HOA fees. On average, this will cost you $200 to $300 a month, though your bill could be far higher depending on where you live.
  • Utilities: This typically includes gas, electricity and water. 
  • Home repair and maintenance: Once you become a homeowner, you’re responsible for fixing anything that breaks around the house. The amount you’ll need to budget for depends on the condition, age and size of the home but should be at least 1% of the purchase price. 

How much of your income should go toward home expenses?

If you’re taking out a mortgage, lenders usually want to see that you’re not spending more than 35% of your monthly pre-tax income on your total debt, including your mortgage payment.

For example, if your gross monthly income is $8,000, your housing payment and other monthly debt shouldn’t exceed $2,800. 

What is the 28/36 rule and should you use it?

However, the 28/36 rule is another guideline many use instead. It states the following: 

  1. Your housing costs shouldn’t exceed 28% of your gross monthly income. 
  2. Your total debt payments shouldn’t be greater than 36% of your gross monthly income. 

When lenders compare your housing payment with your income, it’s known as your front-end debt-to-income (DTI) ratio. When they compare your total debt payments with your income, that’s your back-end DTI ratio. 

Given the same example of an $8,000 gross monthly income, if your housing payment is $1,800, then your other total debt payments should be no more than $1,080 to keep your back-end ratio at 36% or less. 

How different types of loans can affect home affordability

The type of mortgage you choose to finance your home purchase can affect your overall cost. Here are a few of the different mortgage types, along with their associated expenses: 

Compare the best mortgage lenders

Frequently asked questions (FAQs)

“Your down payment impacts your monthly mortgage costs [by] simply lowering the amount you need to borrow for a house,” says Judy Dutton, executive editor at Realtor.com. “The less you borrow, the less you’ll pay in interest and the lower your monthly mortgage payments will be.”

If you have a small down payment, on the other hand, you’ll need to take on a mortgage with higher monthly payments. 

The size of your down payment also determines whether you need to pay PMI. Lenders typically require PMI if your down payment is lower than 20% of the home’s purchase price — which could add 0.1% to 2% of your loan amount to your costs.

Lenders automatically cancel PMI after your loan-to-value (LTV) ratio has gone down to 78% or you’ve gone through half of your repayment term, whichever comes first. Some lenders will cancel PMI after your LTV ratio has hit 80%, but you’ll need to reach out to the lender and make this request.

A higher mortgage interest rate will lead to higher monthly mortgage payments and long-term costs. Consider the following example of a $300,000 mortgage with a 20% ($60,000) down payment. 

If you had a 4.5% interest rate, you’d make monthly payments of $1,216 on a 30-year term and pay $197,776 in total interest charges over the life of the loan. But if your rate was higher at 7%, your monthly payments would increase to $1,596 and total interest charges would be $334,821. 

Note: This example doesn’t include homeowners insurance, property taxes, HOA fees or PMI, all of which can make your monthly payments even higher.

Home affordability calculators are accurate, but they’re only as good as the information you give them. It’s tough to know exactly how much your homeowners insurance, HOA fees, PMI and interest rate will be until you’ve chosen a home and applied for a mortgage. 

However, these calculators can help you understand the maximum you can afford to pay toward these costs based on your income and other monthly debt payments. Besides using a home affordability calculator, Dutton recommends getting preapproved for a mortgage before you start house shopping. 

“[The preapproval] process involves providing a lender with proof of your income, debts and other info so they can run your numbers and tell you how much they’d let you borrow to buy a home,” says Dutton. “It’s an important step to take before you start house hunting so you don’t go shopping for a house and fall in love with one that’s beyond your means.”

Closing costs generally range from 2% to 5% of your total loan amount. They include a variety of expenses, such as the origination fee, appraisal fee, property taxes and homeowners insurance. 

These added costs are another good reason to shop around and compare your options with multiple mortgage lenders. Be sure to consider rates and any other fees associated with the loan to find the best mortgage for your budget.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Rebecca Safier

Rebecca has been writing about personal finance and education since 2014. With a background in teaching and school counseling, she brings firsthand experience working with students and their families to her writing about student loans, financial aid and the college process. Formerly a senior student loans and personal loans writer for Student Loan Hero and LendingTree, Rebecca now covers a variety of personal finance topics, including budgeting, saving for retirement, home buying and home ownership, side hustles and more. Her work has been featured in MarketWatch, U.S. News & World Report, Forbes Advisor, and other publications, and she’s contributed expert commentary to Fortune, Money.com, NBC and more. When Rebecca’s not writing about money, she’s teaching people how to create profitable blogs on her website, Remote Bliss.

Jamie Young

Jamie Young is lead editor of loans and mortgages at USA TODAY Blueprint who has been writing and editing for online media for 12 years. Previously, she worked for Forbes Advisor, Credible, LendingTree, Student Loan Hero, and GOBankingRates. Her work has also appeared on some of the best-known media outlets including Yahoo, Fox Business, Time, CBS News, AOL, MSN, and more. Jamie is passionate about finance, technology, and the Oxford comma. In her free time, she takes care of her two crazy cats and ever-growing collection of plants. You can follow her on Twitter @atjamie.



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