How Much House Can I Afford

Financing Your Home Purchase

To get a quick idea of what you can afford to spend, multiply your annual gross income (before taxes) by 2.5. For example, if your annual household income is $50,000, you might be able to qualify for a $125,000 home. This is just a rough estimate - the actual number will vary based on factors such as your debt and credit history.

Mortgage lenders typically use the housing expense and debt-to-income ratios to more accurately determine how much you can afford to spend on your mortgage.

Housing Expense Ratio

Mortgage lenders recommend that your monthly mortgage payment should be less than or equal to a quarter of your monthly gross income. This percentage can change based on the type of mortgage you choose and sometimes the area in which you're looking to buy.

Debt-to-Income Ratio

You need to factor your other debts into determining an affordable monthly mortgage payment. Mortgage lenders look at whether your total debt is larger than 30-40% of your monthly gross income. Remember, debt is not just credit cards and student loans. It can also include alimony, child support, car loans, and housing expenses.

You can use our "How Much Can I Afford Calculator" to give you a pretty good idea of what most lenders will permit. Contact a mortgage lender, a housing counselor, or consumer credit counselor can help you better understand these guidelines. Before you talk to a financial professional, you can organize your financial picture by creating a budget. Don't forget that you also have to save for the down payment, closing costs, inspections costs, moving, and other related expenses.

So How Much Of A Mortgage Can I Afford?

The "How Much Can I Afford Calculator" will help you determine "how much can I afford to spend on a house". To check out "how much can I afford for a house payment", just enter the desired loan amount, loan period, monthly debt payments etc. The mortgage calculator afford will help you find out "how much mortgage can I afford" and the monthly income required to manage the loan.

To check "how much can I afford to pay for a house", you need to calculate 2 ratios - housing and debt-to-income ratios. The housing ratio which denotes how much you spend on housing expenses (including any existing mortgage payments) should not exceed 28% of your gross monthly income. To be able to afford a mortgage, your debt-to-income ratio should not exceed 36%. The debt-to-income ratio includes your housing expenses as well as payments on installment and revolving debt. For FHA loans especially, the housing and debt-to-income ratios should be 29% and 41% respectively.

Let's take an example to find out "how much can I afford to spend on a house":

Say, the gross monthly income of a family is $10,000. Since you need to keep your housing ratio to 28%, the maximum monthly mortgage payment that you can afford = [10,000 x 0.28] = $2800. So, if you're confused as to "how much can I afford for a house payment", just calculate your housing ratio.

Now, since you need to keep the debt-to-income ratio as 36%, therefore, you can manage to pay [10,000 x 0.36] = $3600 as the total monthly debt payment which will help you determine "how much of a mortgage can I afford".

Thus, in order to evaluate "how much home can I afford" or "how much of a mortgage can I afford", work out your monthly housing expenses and debt payments. The figures will help you analyze if you can manage a mortgage or evaluate "how much home can I afford".