Buying a home is the largest financial decision most people make. Before you start browsing listings, it's essential to know how much house you can realistically afford — not just what the bank will lend you, but what fits comfortably within your budget.
Key principle: The bank will often approve you for more than you should borrow. What you can afford and what you can get approved for are two different things.
The most widely used guideline for home affordability is the 28/36 rule, used by most lenders and financial advisors.
Your monthly mortgage payment (principal, interest, taxes, insurance) should not exceed 28% of your gross monthly income.
Your total monthly debt payments — mortgage plus car loans, student loans, credit cards — should not exceed 36% of your gross monthly income.
Your down payment significantly affects what you can afford. A larger down payment means a smaller loan, lower monthly payments, and potentially no PMI (private mortgage insurance, required when you put down less than 20%).
Most first-time buyers put down 3%–10%. The conventional 20% down payment eliminates PMI and reduces monthly costs — but it requires more savings upfront.
The mortgage payment is just one part of homeownership costs. Budget for property taxes (typically 1%–2% of home value annually), homeowners insurance ($1,000–$2,000/year), HOA fees if applicable, and maintenance (budget 1% of home value per year for repairs).
Lenders consider your credit score, debt-to-income ratio, employment history, and down payment when determining how much to lend. A credit score above 740 typically qualifies for the best rates. Every 0.5% difference in your mortgage rate can mean tens of thousands of dollars over 30 years.
Use our free mortgage calculator to see your monthly payment, PMI, and total cost for any home price.
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