How Much Home Can I Afford?
Estimate an affordable price range based on your income, debts, down payment, and realistic monthly costs. The more accurate your inputs, the better your estimate.
Your Information
This calculator provides estimates for informational purposes only and does not constitute a loan approval or financial advice. Actual rates and costs vary by borrower, property, and lender.
Your Results
PMI Notice: With a down payment less than 20%, you'll likely need Private Mortgage Insurance (PMI), which could add $50-$200+ to your monthly payment. Contact a lender for exact PMI costs.
How We Calculate
We compute your maximum monthly housing payment using two methods: (a) front-end DTI = monthly income × front-end percentage, and (b) back-end DTI = monthly income × back-end percentage − your other monthly debts. We take the lower of the two amounts, subtract monthly taxes, insurance, and HOA to get an allowable principal + interest payment, then use the standard amortization formula to determine the maximum loan amount. Adding your down payment gives us your estimated maximum home price.
About Our Home Affordability Calculator
When estimating the home purchasing costs you can afford, we take into consideration important info like your household income, monthly debts, down payment savings, and today’s average interest rates to create an estimated price. We also rely heavily on the 28/36 rule.
What Is the 28/36 Rule?
The 28/36 rule is a standard rule of thumb for estimating home affordability. It is centered around your debt-to-income ratio (DTI).
The 28 comes from the standard rule that you should not spend more than 28% of your gross or pre-tax income on home-related costs*. The 36 comes from the rule that you should not spend more than 36% of your income on total debts, which can include car loans, student loans, credit card payments, and other loans or debts.
28/36 Rule Example
Let’s say you earn $5,000 per month before taxes.
To see how much you should spend on monthly home costs (28%), multiply 5,000 by 0.28 (5,000 x 0.28). This calculation gives you a maximum monthly home cost of $1,400.
Now, let’s say you also have a monthly car payment of $250 and a student loan payment of $250. That totals $500 in monthly debt.
Add $500 to $1,400 to get a total monthly debt cost of $1,900. Does this meet the 36 rule? Let’s find out: Divide $1,900 by your monthly income of $5,000 (1,900/5,000) to get 0.38, or 38%.
$1,400 for monthly home expenses exceeds the 36 rule.
To meet the 36 rule, multiply 5,000 by 0.36 and subtract 500:
$5,000 x 0.36 = $1,800
$1,800 − $500 = $1,300
To fit within the 36 rule of only spending 36% of your income on total monthly debt, your monthly home-related expenses should not exceed $1,300.
*Home-related costs or expenses include your mortgage, property tax, homeowners insurance, and other possible fees, such as HOA costs.
Why Get Prequalified Before House-Hunting?
Getting prequalified means speaking with a knowledgeable mortgage lender about your finances before you start looking at houses on the market. It’s a crucial step in the homebuying process because it shows you your purchasing capabilities, ideal budget, and the home prices most suited to your budget. Prequalification saves you the time, energy, and emotional strain it takes to look at houses out of your price range. Instead, it directs you to the homes you can comfortably afford. During prequalification, you may find that you qualify to borrow more for a home loan than you would like to spend. That’s okay! Determine a comfortable spending price below your max qualification number and limit your home search to houses that do not exceed that number.
Prequalification vs. Preapproval
Prequalification is when you speak with a lender and discover exactly how much you can and should spend on a home purchase. It gives you a solid idea of your homebuying budget. Preapproval is when you verify your creditworthiness with your lender, proving that you will be approved for a home loan should you want to take one out. Preapproval puts you in good standing with sellers because it tells them that you are able to move forward with the purchase should you put in an offer and they accept it. It gives you confidence as you house-hunt, a competitive edge over other homebuyers, and a fast track to a home loan when you are ready to purchase.
