Home Affordability Calculator — How Much House Can I Afford?

About This Home Affordability Calculator — How Much House Can I Afford?

This free home affordability calculator helps you answer the million-dollar question: "How much house can I actually afford?" Based on your income, existing debt, down payment, and current mortgage rates, this calculator uses the standard Debt-to-Income (DTI) ratio method that lenders use to determine how much they're willing to lend you.

Simply enter your gross annual income, monthly debt payments (car loans, student loans, credit cards), your down payment amount, and your estimated interest rate. We'll show you the maximum home price you can afford, your estimated monthly mortgage payment, and your DTI ratio.

What Is Debt-to-Income (DTI) Ratio?

Your Debt-to-Income (DTI) ratio is the percentage of your gross monthly income that goes toward paying debts. Lenders use DTI to judge how risky it is to lend you money — the higher your DTI, the riskier you look.

There are two types of DTI:

• Front-end ratio (housing ratio): Your monthly mortgage payment (principal, interest, taxes, insurance) divided by your gross monthly income. Most lenders want this to be under 28%.
• Back-end ratio (total DTI): All your monthly debt payments (mortgage + car loans + student loans + credit cards + child support) divided by your gross monthly income. Most lenders want this to be under 36%.

This calculator uses the back-end DTI ratio, because that's what lenders actually use to qualify you for a mortgage.

The 28/36 Rule of Thumb

The classic 28/36 rule is a common guideline for how much house you can afford:

• No more than 28% of your gross monthly income should go toward housing expenses (mortgage, property tax, insurance, HOA dues).
• No more than 36% of your gross monthly income should go toward total debt payments (housing + car loans + student loans + credit cards).

Following this rule keeps your housing costs manageable and leaves you room in your budget for saving, entertainment, and unexpected expenses. If you go above 36% DTI, you might be "house poor" — you can afford the mortgage on paper, but you'll struggle to pay for anything else.

What Goes Into Your Monthly Mortgage Payment?

Your monthly mortgage payment isn't just principal and interest! It's often called PITI:

• Principal — The amount you borrowed, paying down your loan balance.
• Interest — The cost of borrowing money, paid to the lender.
• Taxes — Property taxes, typically escrowed and paid monthly (averages 1-2% of the home value per year).
• Insurance — Homeowners insurance, also escrowed (averages $1,000-$2,000 per year depending on where you live).

If you put less than 20% down on a conventional loan, you'll also have Private Mortgage Insurance (PMI) added to your monthly payment. PMI costs 0.5-1.5% of the loan amount per year, and it's required until you reach 20% equity in the home. FHA loans have a similar MIP (Mortgage Insurance Premium) — see our FHA Loan Calculator for details.

How Much Should You Actually Put Down?

The traditional advice is to put 20% down to avoid PMI. But is that always the best move?

• 20% down: No PMI, lower monthly payment, more equity in the home. But it ties up a lot of cash that you could invest elsewhere.
• 10% down: You'll pay PMI, but you keep more cash on hand for emergencies or investments. If your investment returns beat the PMI cost, this can be a smart move.
• 3.5% down (FHA loan): Lower barrier to entry, but you'll pay MIP for the life of the loan (if you put less than 10% down). Good for first-time buyers who haven't saved a full 20% yet.
• 0% down (VA loan): For eligible veterans and service members. No down payment, no PMI. This is the best mortgage product available — see our VA Loan Calculator for details.

The "right" down payment depends on your situation: how much cash you have, your credit score, how long you plan to stay in the home, and what your alternative investment options are.

Common Mistakes When Estimating Home Affordability

• Forgetting closing costs: Closing costs are 2-5% of the purchase price, paid at closing. On a $400,000 home, that's $8,000-$20,000 extra! Don't forget to save for these on top of your down payment.
• Ignoring property taxes: Property taxes vary wildly by state. In New Jersey, they're 2.5%+ of home value. In Hawaii, they're under 0.5%. Make sure you're using the right number for your area.
• Underestimating home maintenance: The 1% rule says you should budget 1% of the home's value per year for maintenance and repairs. On a $400,000 home, that's $4,000/year — $333/month! A new roof, a new HVAC system, a water heater replacement... these add up fast.
• Forgetting HOA dues: If you're buying a condo or a home in a planned community, HOA dues can be $100-$500+ per month. These add to your housing costs and should be included in your DTI calculation.
• Buying the maximum you qualify for: Just because a lender will give you a $500,000 mortgage doesn't mean you should take it. Lenders use the maximum DTI they're allowed to offer — they don't care about your student loan payments, childcare costs, or desired lifestyle. Leave yourself breathing room!

Rent vs. Buy: Is It Worth It?

Buying a home isn't always the best financial decision. The "rent vs. buy" breakeven point depends on several factors:

• How long you'll stay: It typically takes 5-7 years of homeownership to break even on buying vs. renting, because of transaction costs (closing costs, realtor fees when you sell). If you think you'll move in less than 5 years, renting is probably better.
• Local rent-to-price ratio: If rent is very cheap relative to home prices (like in many midwestern cities), renting might be the better deal. If rent is expensive relative to buying (like in San Francisco or NYC), buying often wins out.
• Mortgage interest rates: When rates are 7%+, monthly mortgage payments are much higher than when rates are 3%. Wait for lower rates if you can.
• Opportunity cost of your down payment: The 20% down payment you put on a house could be invested in the stock market instead. If your expected stock market return (7% annual) is higher than your home's expected appreciation (3-5% annual), renting and investing might be mathematically better.

Frequently Asked Questions

How much house can I afford on a $100,000 salary?

Using the 36% DTI rule with no other debt, a $100,000/year salary means you can afford about $3,000/month in total housing costs. At a 6.5% interest rate on a 30-year loan, that translates to a home price of around $450,000-$500,000 with a 20% down payment. If you have other debt payments (car loans, student loans), the number will be lower.

What's the 28/36 rule?

The 28/36 rule is a common guideline for housing affordability: no more than 28% of your gross monthly income should go toward housing expenses, and no more than 36% should go toward total debt payments (including housing, car loans, student loans, credit cards). Following this rule keeps your budget healthy and leaves room for saving and unexpected expenses.

How much down payment do I need?

It depends on the loan type: conventional loans require 3-20% down (20% to avoid PMI), FHA loans require 3.5% down, VA loans require 0% down for eligible veterans. The traditional advice is 20% down to avoid PMI, but many people successfully buy homes with much less. Just remember: the less you put down, the higher your monthly payment and the more interest you pay over the life of the loan.

What DTI ratio do lenders prefer?

Most conventional lenders prefer a back-end DTI of 36% or less. For Qualified Mortgages (QM), the maximum DTI is 43%. FHA and VA loans allow higher DTIs — up to 57% with strong compensating factors. Just because you qualify for a high DTI doesn't mean you should take it — the higher your DTI, the tighter your budget will be.

Should I buy the maximum house I can afford?

No! Just because a lender qualifies you for a $500,000 mortgage doesn't mean you should buy a $500,000 house. Lenders use the maximum DTI they're allowed to offer — they don't account for your desired lifestyle, travel goals, childcare costs, or retirement savings. Leave yourself breathing room. A good rule: buy 20-25% less than the maximum you qualify for. You'll be much happier.

Frequently Asked Questions (More Answers)

How much house can I afford with $50,000 per year?

On a $50,000/year salary, your gross monthly income is about $4,167. Using the 36% DTI rule (with no other debt), that's about $1,500/month for housing. At a 6.5% 30-year rate, that translates to a home price of roughly $220,000-$250,000 with a 10% down payment. If you have student loans or a car payment, the number will be lower.

Does my credit score affect how much house I can afford?

Yes! Your credit score directly affects your mortgage interest rate. A 740+ credit score gets you the best rates (currently around 6.5-7% for 30-year fixed). A 620-639 score might get you a rate of 8%+, which adds hundreds of dollars to your monthly payment and reduces the total home price you can afford by tens of thousands of dollars. Improving your credit score by 50 points before applying for a mortgage can save you tens of thousands over the life of the loan.

What's the difference between pre-qualification and pre-approval?

Pre-qualification is a rough estimate based on what you tell the lender about your income, assets, and credit. It's not very formal and doesn't carry much weight with sellers. Pre-approval is much more serious: the lender actually checks your credit, verifies your income and assets, and gives you a formal letter saying how much they're willing to lend you. Sellers take pre-approval letters much more seriously — in competitive markets, you'll lose offers if you only have a pre-qualification letter.

How much should I save for closing costs?

Closing costs are typically 2-5% of the home purchase price, paid at closing. On a $400,000 home, that's $8,000-$20,000. These include origination fees, appraisal fees, title insurance, attorney fees, and prepaid taxes/insurance. Don't forget to save for closing costs on top of your down payment! Some sellers will agree to pay part of your closing costs as part of the negotiation.

Should I buy now or wait for rates to go down?

That's the million-dollar question! Mortgage rates are around 6.5-7% in 2024, up from 3% in 2021. No one knows for sure if/when they'll go down. If you plan to stay in the home for 7+ years, you can always refinance later when rates drop. Waiting for "better" rates might mean you're renting for another 1-2 years and building no equity. A common strategy: buy now, then refinance when rates drop to 5% or below. Just make sure there's no prepayment penalty on your mortgage.