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How Much House Can I Afford?How to Find Your Home Affordability

If you’ve ever asked yourself, “How much house can I afford?”, this is a crucial step in the home buying process. It helps you establish a realistic budget and ensures that you don’t overextend yourself financially.

In this comprehensive guide, we will explore various factors that influence affordability and provide you the info and resources you need to calculate how much house you can afford. Whether you’re a first-time homebuyer or looking to upgrade to a larger property, this guide will help you make informed decisions.

How Much Mortgage Payment Can I Afford?

To accurately determine your affordable mortgage payment, it’s important to consider several key elements of your financial situation. These include:

  1. Household Income: Begin by assessing your household income, which includes your salary, bonuses, and any additional sources of income. This provides a foundation for establishing your budget.
  2. Monthly Debts: Take into account your monthly debt obligations, such as car loans, student loan payments, and credit card debts. These outgoings impact your overall financial capacity.
  3. Savings for Down Payment: The amount of savings you have available for a down payment significantly affects your affordability. The larger your down payment, the lower your mortgage amount and monthly payment.

Calculating Your Debt-to-Income Ratio

Your debt-to-income ratio (DTI) is a crucial factor that lenders consider when determining how much you can borrow for a mortgage. It compares your total monthly debts to your monthly pre-tax income. To calculate your DTI, divide your total monthly debts by your monthly pre-tax income.

For example, if your monthly mortgage payment, including taxes and insurance, is $2,139, and your monthly income before taxes is $4,500, your DTI would be 28% (2,139 / 4,500 = 0.28). This DTI value is within the affordable range according to the 28/36 rule.

For more info on Debt-to-Income, here is a great article: What Is Your Debt-to-Income Ratio? Learn the Basics

Understanding the 28/36 Rule

One commonly used rule of thumb to calculate affordability is the 28/36 rule. This rule states that you should not spend more than 28% of your gross monthly income on home-related costs and no more than 36% on total debts, including your mortgage, credit cards, and other loans such as auto and student loans.

For instance, if your gross monthly income is $8,333, you should aim to spend no more than $2,333 (28% of $8,333) on housing expenses. This includes mortgage payments, property taxes, homeowners insurance, and homeowners association fees. Additionally, your total debts, including your mortgage and other loans, should not exceed $3,000 (36% of $8,333).

Calculating Affordability with Different Loan Options

To calculate affordability accurately, you must also consider the specific loan options available to you. Let’s explore a few popular loan options:

  1. FHA Loan: If you’re considering a smaller down payment, as little as 3.5%, you might apply for an FHA loan. These loans have more relaxed qualifying standards, making them suitable for buyers with lower credit scores.
  2. VA Loan: If you have a military connection, you may qualify for a VA loan. VA loans are advantageous because they don’t require a down payment, your Funding Fee is included in your loan amount, and there is no monthly PMI. This program is restricted to eligible veterans and enlisted military personnel.
  3. Conventional Loans: Conventional loans are loans secured by Fannie Mae and Freddie Mac. These loans have down payments as low as 3%. PMI is paid for loans below a 20% down payment. So that can be a factor in affordability, and needs to be taken into consideration when calculating your affordability.

Advantages of an FHA Loan

An FHA loan can be a great option if you’re looking for a smaller down payment. With an FHA loan, you can qualify with a minimum down payment of 3.5%. This makes homeownership more accessible, particularly for first-time buyers or those with limited savings. Furthermore, FHA loans often have more relaxed qualifying standards, making them a viable choice for borrowers with lower credit scores.

Considerations for Conventional and VA Loans

Conventional loans offer down payment options as low as 3%, although qualification criteria may be stricter compared to FHA loans. VA loans, available to borrowers with military connections, don’t require a down payment. This significant advantage is factored into Home Affordability when determining your personalized affordability range.

Determining Affordability Based on Your Specific Profile

Once you’ve considered all the factors mentioned above, you can use a home affordability calculator to determine the specific price range you can afford. This calculator incorporates your monthly income, cash reserves, monthly expenses, and credit profile to estimate your affordability accurately.

A home affordability calculator ensures that you comfortably manage your mortgage payments and other monthly obligations. It also allows you to input different scenarios and reflect your current financial situation.

Applying the Three Months Payment Reserve Rule

While assessing your affordability, it’s crucial to account for unforeseen circumstances that may impact your financial stability.

A useful rule of thumb is to ensure you have at least three months of mortgage payments, including your housing payment and other debts, in reserve. This reserve acts as a safety net, enabling you to cover your mortgage payment in case of unexpected events such as medical emergencies, job loss, or home repairs.


Determining how much house you can afford is a critical step in the home buying process. By following the guidelines in this guide, you can calculate your affordability accurately and make informed decisions.

Remember to consider factors such as your DTI, monthly income, cash reserves, monthly expenses, and credit profile. Additionally, use home affordability calculators to get a specific price range that suits your financial situation.

The best way to know for sure what you can afford, is to get a Loan Pre-Approval. Heritage offers an industry-leading option for submitting your pre-approval online.

Follow the link below and get started on your journey to home ownership!

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Frequently Asked Questions about Home Affordability

How do I determine how much house I can afford?

Calculate affordability based on income, debts, credit profile, and expenses. Use an affordability calculator for a personalized price range.

What factors determine how much house I can afford?

Key factors include income, cash reserves, monthly expenses, and credit profile. These affect your borrowing capacity and interest rate.

How does the 28/36 rule help determine affordability?

This rule suggests not exceeding 28% of income on housing costs and 36% on total debts. Consider your complete financial situation too.

How do mortgage rates influence home affordability?

Lower rates mean lower monthly payments. Lenders evaluate debt-to-income ratio, bill payment history, income, and down payment.

Brad Patshkowski

Preparing future home owners is paramount to our customer's success and the success of our industry. The dream of homeownership is closer than you think!