How much house can I afford guide

Figuring out how much house someone can afford is often the first step before starting a home search. Lenders use specific formulas and information to estimate the maximum loan amount for a home purchase. These calculations depend on income, debts, down payment, and current mortgage rates.

The question "How much house can I afford?" comes up for almost every homebuyer. There are tools and rules that help make this calculation clear.

This guide covers the basics of home affordability and how to estimate a comfortable home price.

TL;DR: Quick Home Affordability Summary

• Use the 28/36 rule as a quick guideline - keep housing costs under 28% of your gross monthly income and total monthly debts under 36%. • Your true budget depends on income, debt, down payment, interest rate, and loan type. • Don’t forget property taxes, insurance, HOA fees, utilities, and maintenance when estimating monthly costs. • Improving your credit score, reducing debt, and increasing your down payment expand how much home you can afford. • If you’re selling a home first, a cash offer option like Opendoor can simplify timing and coordination for your next purchase.

The 28/36 rule for quick budget math

The 28/36 rule is like a financial guardrail that helps you stay within a comfortable spending range. Here's how it works: your monthly housing costs stay below 28% of your gross monthly income, and your total monthly debt payments stay below 36%.

Let's say you make $6,000 per month before taxes. Using this rule, your housing payment would cap at $1,680 (that's $6,000 × 0.28). Your total debt payments, including that housing payment, would max out at $2,160 (that's $6,000 × 0.36).

This rule exists because it leaves room in your budget for everything else-groceries, gas, savings, and those unexpected expenses that always seem to pop up.

Key factors lenders use to determine mortgage affordability

When you apply for a mortgage, lenders look at your financial picture from several angles. They want to make sure you can handle the monthly payments without stretching yourself too thin.

Debt to income ratio

Your debt-to-income ratio, or DTI, is one of the most important numbers in mortgage lending. It's calculated by dividing your total monthly debt payments by your gross monthly income, then converting that to a percentage.

If you make $5,000 per month and have $1,000 in monthly debt payments, your DTI is 20%. Lower DTI ratios typically qualify for better loan terms and higher loan amounts.

Credit score impact

Your credit score tells lenders how reliably you've handled borrowed money in the past. Higher credit scores unlock lower interest rates, which can save you thousands of dollars over the life of your loan.

A higher score also means lenders might approve you for a larger loan amount, expanding your home affordability range.

Interest rate and loan term

The interest rate is what the lender charges you to borrow money. Even small changes in rates can significantly impact your monthly payment and the total home price you can afford.

Loan term refers to how long you'll take to pay back the mortgage. Most people choose between 15-year and 30-year loans:

• 30-year loans: Lower monthly payments but higher total interest over time

• 15-year loans: Higher monthly payments but less total interest paid

Loan type: FHA, VA, USDA, conventional

Different loan programs have different requirements, which can affect how much house you can afford:

• FHA loans: Allow down payments as low as 3.5% and accept lower credit scores

• VA loans: Available to eligible veterans and active military, often with no down payment required

• USDA loans: Designed for rural areas, sometimes with no down payment needed

• Conventional loans: Typically require higher credit scores but offer flexible terms

Down payment size

Your down payment directly impacts affordability in two ways. A larger down payment reduces the amount you need to borrow, which lowers your monthly payment. It can also help you avoid private mortgage insurance (PMI) if you put down at least 20%.

Monthly costs beyond the mortgage payment

Your mortgage payment covers the loan, but homeownership comes with additional monthly expenses that affect what you can truly afford.

Property taxes

Property taxes are charged by your local government based on your home's assessed value. These taxes vary widely by location-some areas have high property taxes, while others keep them low.

Most lenders collect property taxes monthly through an escrow account, then pay the government on your behalf when taxes are due.

Homeowners insurance

Lenders require homeowners' insurance to protect their investment in your property. This insurance covers damage from events like fires, storms, or theft. The cost depends on your home's value, location, and the coverage level you choose.

Private mortgage insurance

PMI kicks in when your down payment is less than 20% of the home's purchase price. This insurance protects the lender if you default on the loan. PMI typically costs between 0.4% and 1.5% of the original loan amount per year, paid monthly.

The good news? You can usually cancel PMI once you've built up 20% equity in your home.

HOA dues and utilities

Some neighborhoods have homeowners associations that charge monthly or annual fees. These fees cover shared amenities like pools, landscaping, or security.

Utilities like electricity, water, gas, and trash collection are separate from your mortgage. These costs vary based on your home's size, efficiency, and local utility rates.

Maintenance and repairs

Unlike renting, homeowners handle all maintenance and repairs themselves. This includes routine upkeep like lawn care and HVAC maintenance, plus unexpected issues like a broken water heater or roof repairs.

Many financial experts suggest budgeting 1-4% of your home's value annually for maintenance and repairs.

How much house can I afford on different salaries?

Your income directly impacts your home affordability, but the relationship isn't always straightforward. Here's how different salary levels translate into home-buying power using the 28/36 rule.

$70,000 income example

With a $70,000 annual salary, your gross monthly income is about $5,833. Following the 28% guideline, your maximum monthly housing payment would be around $1,633.

After accounting for property taxes, insurance, and potentially PMI, this typically translates to a home price range of $275,000 to $325,000, depending on your down payment and local costs.

$100,000 income example

A $100,000 salary provides roughly $8,333 in monthly gross income. This allows for a maximum housing payment of about $2,333 per month.

With this budget, you could typically afford a home priced between $375,000 and $450,000, assuming average property taxes and insurance costs.

Salary needed for a $400,000 home

To comfortably afford a $400,000 home while following the 28/36 rule, you'd typically need a gross annual income of at least $89,000. This assumes a standard down payment and average local costs for taxes and insurance.

Salary needed for a $1 million home

A million-dollar home requires substantial income, typically around $215,000 annually or more. At this price point, your monthly housing costs could easily exceed $5,000, so having a high, stable income becomes crucial.

Ways to increase how much home you can afford

If your current financial situation doesn't quite get you to your target home price, there are several strategies that can help expand your buying power.

Inputs That Affect Home Affordability

1. Pay down high-interest debt

Reducing your monthly debt payments improves your debt-to-income ratio, which can qualify you for a larger mortgage. Focus on paying off high-interest debt like credit cards first, as these typically have the biggest impact on your monthly obligations.

2. Boost your credit score

A higher credit score can unlock better interest rates, which directly impacts affordability. Simple steps include paying bills on time, keeping credit card balances low, and checking your credit report for errors.

3. Increase your down payment

Saving more for your down payment reduces the loan amount you need, lowering your monthly payment. Plus, putting down 20% or more eliminates PMI, saving you additional monthly costs.

4. Choose a longer loan term

A 30-year mortgage spreads payments over more time than a 15-year loan, resulting in lower monthly payments. This can help you qualify for a higher loan amount, though you'll pay more interest over time.

5. Shop lower-cost neighborhoods

Home prices vary significantly by location. Expanding your search to include more affordable neighborhoods can dramatically increase your options within your budget.

House affordability calculator vs prequalification vs preapproval

Comparing Buyer Readiness Tools

Understanding the difference between these three tools can help you navigate the home-buying process more effectively.

A house affordability calculator gives you a rough estimate based on the information you enter. It's quick and helpful for initial planning, but it doesn't involve a lender reviewing your actual financial documents or credit history.

Prequalification involves a basic conversation with a lender about your finances. The lender provides an estimated loan amount, but they haven't verified your information or pulled your credit report. It's a step up from a calculator, but still not a firm commitment.

Preapproval is the most thorough process. The lender reviews your financial documents, checks your credit, and issues a conditional commitment for a specific loan amount. This carries real weight when making offers on homes.

Move with confidence using Opendoor's digital cash offer

For homeowners who need to sell before buying their next home, Opendoor offers a streamlined solution. The platform provides competitive cash offers for current homes, helping align the timing of selling and buying.

The process starts with submitting details about your property through Opendoor's platform. After reviewing your home information, Opendoor provides a cash offer with flexible closing dates. This can provide the certainty needed to move forward with purchasing your next home.

To explore this option, visit Opendoor's address entry page to request a cash offer for your current home.

Request an Opendoor cash offer based on your home’s current condition and choose a closing date that fits your timeline.

FAQs about affording a home

Can I count freelance or bonus income toward my mortgage approval?

Lenders typically require at least two years of consistent freelance or bonus income history and may average this variable income over time before including it in your mortgage application.

What happens if mortgage rates rise after I determine my budget?

Rising mortgage rates reduce your purchasing power, meaning you may need to adjust your target home price downward or increase your down payment to maintain the same monthly payment.

How does selling my current home first change how much house I can afford?

Sale proceeds from your current home can serve as a larger down payment or help pay off existing debts, potentially expanding your budget for your next home purchase and improving your mortgage qualification.

This article is for informational purposes only and does not constitute financial or legal advice. Loan qualification requirements and affordability guidelines vary by lender, loan type, and location. Always consult a licensed mortgage or financial professional for advice specific to your situation.