How Much House Can I Afford?

To feel convinced about buying a house you can afford, enter your monthly income into our calculator and instantaneously get a list of family prices that fit your budget .

As you can see from our calculator, how much house you can afford in truth depends on the relationship between your income and mortgage.

To figure out how much mortgage you can afford with your income, unlike lenders use different guidelines—but most lenders dish out mortgages that are way besides expensive and keep open borrowers in debt for decades !
We want to help you buy a family that ’ s a benediction, not a burden. And the entirely way to do that is to calculate your home-buying budget the smart way—and pin to it !

See how much house you can afford with our free mortgage calculator !

That ’ s what our calculator does for you. How does it work ? We ’ ll show you—get ready for some mathematics !

How Much House Can I Afford Based on My Salary?

To calculate how much house you can afford, use the 25 % rule—never spend more than 25 % of your monthly take-home pay ( after tax ) on monthly mortgage payments .
That 25 % limit includes principal, interest, property taxes, home insurance, private mortgage indemnity ( PMI ) and don ’ deoxythymidine monophosphate forget to consider homeowners association ( HOA ) fees. Whoa—those are a draw of variables !
But don ’ thyroxine worry, our full-version mortgage calculator makes it superintendent easy to calculate those numbers so you can preview what your monthly mortgage requital might be .

How Will My Debt-to-Income Ratio Affect Affordability?

When you apply for a mortgage, lenders normally look at your debt-to-income proportion ( DTI ) —your total monthly debt payments divided by your arrant monthly income ( before tax ) written as a percentage .
Lenders frequently use the 28/36 rule as a augury of a healthy DTI—meaning you won ’ thyroxine spend more than 28 % of your crying monthly income on mortgage payments and no more than 36 % on total debt payments ( including mortgage, student loan, car loan and credit card debt ) .
If your DTI ratio is higher than the 28/36 convention, some lenders will still be bequeath to approve you for finance. But they ’ ll charge you higher interest rates and add extra fees like mortgage policy to protect themselves ( not you ) in case you get in over your oral sex and can ’ t make mortgage payments .

How Much House Does Dave Ramsey Say I Can Afford?

For decades, Dave Ramsey has told radio listeners to follow the 25 % rule when buying a house—remember, that means never buy a house with a monthly mortgage that ’ south more than 25 % of your monthly take-home give .
At Ramsey, we besides teach people they can ’ thyroxine afford to buy a house unless they meet these qualifications :

  • Are completely debt-free
  • Have an emergency fund of 3–6 months of expenses
  • Saved a down payment of 10–20%
  • Can qualify for a 15-year fixed-rate conventional mortgage

The reason we continue to teach these guidelines at Ramsey is because when people throw a mortgage on top of all their debt, unexpected expenses or a job loss can easily crush them financially. We don ’ metric ton want that to happen to you .

How to Calculate How Much House You Can Afford

Okay, all you truly have to do is crunch a few numbers to figure out how much house you can afford. And if mathematics international relations and security network ’ t your thing, hang in there. We ’ ll walk you through it step by footfall. We ’ ve never lost a affected role .
And for you married folks, make sure you go over the results with your spouse. You both need to be on the like page when it comes to your budget and what you can actually pay. After all, shopping for your “ dwelling sweetness home ” will feel—dare we say—romantic once you and your sweetheart set shared expectations .
Simply follow the steps below .

1. Figure Out 25% of Your Take-Home Pay

Let ’ s say you earn $ 5,000 a calendar month ( after tax ). According to the 25 % principle we mentioned earlier, that means your monthly house requital should be nobelium more than $ 1,250 .
Stick to that issue and you ’ ll have batch of room in your budget to tackle other fiscal goals like home maintenance and investing for retirement .

2. Use Our Mortgage Calculator to Determine Your Home Budget

sure, you could crunch the numbers yourself by dividing a home price by 180 months ( that ‘s a 15-year mortgage ) and then multiplying the decreasing monthly star counterweight by your pastime rate. But if you ‘re anything like us, you credibly broke a effort just reading that formula .
To save yourself the time and headache of doing a short ton of mathematics, we built a mortgage calculator to do that for you—phew !
Sticking with our case of an income of $ 5,000 a month, you could afford these options on a 15-year fixed-rate mortgage at a 4 % interest rate :

  • $187,767 home with a 10% down payment ($18,777)
  • $211,238 home with a 20% down payment ($42,248)
  • $241,415 home with a 30% down payment ($72,424)
  • $281,650 home with a 40% down payment ($112,660)

Remember : This is just a approximate range ! Don ’ thymine forget that grown-up stuff like property taxes and home insurance will top off your monthly requital with another few hundred dollars or so ( icing on the cake ). And if you think you ’ ll be buying a home that ’ sulfur part of a homeowners association ( HOA ), you ’ ll necessitate to factor those adorable fees in angstrom well .
For example, if you plug in a mortgage amount of $ 211,238 with a 20 % down requital at a 4 % interest rate, you ’ ll find that your maximum monthly payment of $ 1,250 increases to $ 1,515 when you add in $ 194 for taxes and $ 71 for insurance. To get that count binding down to a monthly caparison budget of $ 1,250, you ’ ll need to lower the price of the house you can afford to $ 172,600 .
Use our calculator to try out other combinations to find the right mortgage come, interest rate and down requital jazz band that will work for your budget.

3. Don’t Forget to Factor in Closing Costs

Alright, preceptor ’ deoxythymidine monophosphate freak out out here. But a down payment international relations and security network ’ t the only cash you ’ ll need to save up to buy a home. There are besides closing costs to consider .
On average, close costs are about 3–4 % of the purchase price of your home. 1 Your lender and actual estate agent buddies will let you know precisely how much your close costs are thus you can pay for them on close sidereal day .
These costs cover important parts of the home-buying process, such as :

  • Appraisal fees
  • Home inspections
  • Credit reports
  • Attorneys
  • Home insurance

Don ’ thymine forget to factor your completion costs into your overall home-buying budget. For model, if you ’ ra purchasing a $ 200,000 home, reproduce that by 4 % and you ’ ll get an estimated close cost of $ 8,000. Add that amount to your 20 % depressed requital ( $ 40,000 ), and the entire cash you ’ ll motivation to purchase your dwelling is $ 48,000 .
If you don ’ t have the extra $ 8,000 for closure costs, you ’ ll either need to hold off on your home purchase until you ’ ve saved up the supernumerary cash or you ’ ll have to shoot a little lower on your home price scope .
Whatever you do, don ’ metric ton let the conclude costs keep you from making the biggest down payment possible. The bigger the down requital, the less you ’ ll owe on your mortgage !

4. Consider Homeownership Costs

Okay, your emergency fund can cover major dwelling disasters. But if you ’ ll be saving up for a few home upgrades or you ’ re a first-time homeowner, construct board in your monthly budget or start a bury fund for those expenses then there are no nasty surprises .
These costs may include :

  • Increased utilities. On average, if you’re used to paying $100–150 on utilities as a renter in an apartment, you might need to bump up that budget closer to $400 a month as a homeowner.2
  • Maintenance and repairs. Most people complete an average of seven home maintenance projects in a year, costing about $1,100 (in 2020, this shot up to 3,200).3 These could include things like landscaping or routine services like pest control and HVAC tune-ups.
  • Upgrades and additions. If you’ll be saving up for a few major home upgrades, you’ll need to build room in your monthly budget for those expenses too. A minor kitchen remodel alone costs over $26,000.4

5. Save a Bigger Down Payment to Make Your Home More Affordable

Remember, your down payment total makes a big shock on how much home you can afford. The more cash you put down, the less money you ’ ll want to finance. That means lower mortgage payments each calendar month and a faster timeline to pay off your home loanword ! Just imagine a base with zero payments !
immediately, we ’ ra always going to tell you that the best manner to buy a base is with 100 % cash. But if saving up to pay in cash international relations and security network ’ thyroxine reasonable for your timeline, you ’ ll credibly wind up getting a mortgage .
If that ’ mho you, at the very least, save up a depressed payment that ’ s 10 % of the home price. But a better idea is to put down 20 % or more. That room you won ’ t have to pay private mortgage insurance ( PMI ) .
PMI protects the mortgage ship’s company in case you don ’ t make your payments and they have to take back the house ( foreclose ). PMI is a annually tip that normally costs 1 % of the sum loanword value and is—you guessed it—yet another expense that ’ mho added to your monthly payment. ( Boo ! )
Let ’ s backtrack for a second : PMI may change how much family you thought you could afford, so be certain to include it in your calculations if your toss off payment will be less than 20 %. Or you can adjust your home monetary value roll so you can put down at least 20 % in cash .
Trust us. It ’ randomness worth taking the excess time to save for a big down requital. differently, you ’ ll be suffocating under a budget-crushing mortgage and paying thousands more in interest and fees .

Know Which Mortgage Option Is Right for You

Okay, now let ’ s talk about types of mortgages. Most of them ( ARM, FHA, VA, USDA ) are garbage designed to help you pay for a home even if you can ’ thymine afford it .
But when you do the mathematics, you find that these mortgages charge you tens of thousands of dollars more in pastime and fees and keep you in debt for decades longer than the choice we recommend .
That ’ south why getting the right mortgage is so significant ! Setting boundaries on the front end makes it easier to find a base you love that ’ s in your budget .
here are the guidelines we recommend :

  • A fixed-rate conventional loan. With this option, your interest rate is secure for the life of the loan, keeping you protected from the rising rates of an adjustable-rate loan.
  • A 15-year term. Your monthly payment will be higher with a 15-year term, but you’ll pay off your mortgage in half the time of a 30-year term—and save tens of thousands in interest.

Your mortgage lender will most probably approve you for a bigger mortgage than you can actually afford. Do not let your lender set your home-buying budget. Ignore the bank ’ s numbers and joint with your own .
Knowing your family budget and sticking to it is the alone way to make surely you get a mortgage you can pay off adenine flying as potential .

What Salary Do You Need to Buy a $400K House?

now let ’ s take what we ’ ve learned and put it into action with an exemplar. Let ’ s say you want to buy a $ 400,000 house. First, you ’ ll need to do the hard sour of saving up $ 80,000 in cash as a 20 % down payment .
With a 15-year mortgage at a 3 % concern rate, your monthly payment could be around $ 2,200 ( that ’ s lone principal and interest ). To manage that payment, you ’ five hundred indigence to be earning at least $ 8,800 as your monthly take-home pay ( $ 2,200 divided by 25 % ) .
so, to buy a $ 400,000 home, you ’ five hundred need to be earning a take-home wage of more than $ 105,000 per year ( $ 8,800 x 12 months ). Keep in mind, you ’ d actually need more than that after you add the price of property tax and home policy into your mortgage .
If that doesn ’ thyroxine sound like you, don ’ metric ton worry. Try saving a bigger down payment to lower your monthly mortgage until it ’ s no more than 25 % of your take-home pay up. Or look for a smaller starter home in a more low-cost vicinity.

Work With a Buyer’s Agent We Trust

For more steering on buying a theater you can afford, work with a real estate agent. A good agent will help you set the right field expectations when shopping for a home plate in your price range—they may even be able to find you a home plate sale others don ’ thymine know about .
For a quick and easy way to find an agent we trust, try our back local Providers ( ELP ) program. We merely recommend agents who actually care about the fiscal way you ’ re on and won ’ thymine push you to overspend on a house just so they can bring dwelling a bigger commission check mark .
Find your real estate agent today !

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Category : Finance

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