How Much House Can I Afford?
Answer a few simple questions about your income, debts, and savings to get a personalized home affordability estimate with conservative, moderate, and stretch options.
Tell Us About Your Income
Enter your annual gross income before taxes
The "How Much House Can I Afford?" wizard helps you determine a realistic home buying budget based on your income, debts, and financial goals. Unlike simple calculators that give you one number, this tool provides three options: conservative (with room to breathe), moderate (balanced), and stretch (maximum qualifying). Most importantly, it helps you understand the trade-offs of each option so you can make an informed decision.
🫙 Jar Insight: The 28/36 Rule Origins
The 28/36 rule wasn't invented by frugal grandparents—it was created by lenders to protect themselves.
In the 1980s, Fannie Mae and Freddie Mac established these debt-to-income limits as underwriting guidelines. The logic: borrowers who spent more than 28% of income on housing (or 36% on total debt) were more likely to default.
But here's the catch: These limits were the maximum for loan approval, not a recommendation for comfortable living. Today, many lenders approve loans up to 43-50% DTI for "qualified mortgages."
The hidden costs lenders don't count:
- Utilities ($150-400/month)
- Maintenance (1-2% of home value annually)
- Furniture and repairs
- Increased commuting costs
- Lifestyle inflation from "keeping up" with the neighborhood
The smart money move: Many financial advisors suggest the 20/28 rule instead—keeping housing at 20% of take-home pay for true financial flexibility.
Understanding Debt-to-Income (DTI) Ratios
Lenders use two DTI ratios to determine how much house you can afford:
Front-End DTI (Housing Ratio) Your housing costs divided by gross monthly income. "Housing costs" includes:
- Principal and interest (mortgage payment)
- Property taxes
- Homeowner's insurance
- HOA fees (if applicable)
- PMI (if down payment < 20%)
| DTI Level | Risk Assessment |
|---|---|
| Below 25% | Excellent - Room for savings |
| 25-28% | Good - Standard threshold |
| 28-31% | Acceptable - May limit flexibility |
| 31%+ | High - May struggle with unexpected costs |
Back-End DTI (Total Debt Ratio) All monthly debt payments divided by gross income. This includes housing PLUS:
- Car payments
- Student loans
- Credit card minimums
- Personal loans
- Child support/alimony
| DTI Level | Risk Assessment |
|---|---|
| Below 30% | Excellent |
| 30-36% | Good |
| 36-43% | Acceptable for some loans |
| 43%+ | High risk - limited loan options |
The True Cost of Homeownership
Your mortgage payment is just the beginning. Smart buyers budget for the full picture:
Monthly Costs:
| Category | Typical Cost | Notes |
|---|---|---|
| Principal & Interest | Varies | Your actual mortgage payment |
| Property Tax | 0.3-2.5% of value/year | Varies dramatically by location |
| Homeowner's Insurance | $100-300/month | Required by lenders |
| PMI | 0.5-1% of loan/year | Required if <20% down |
| HOA Fees | $0-500+/month | Common in condos, planned communities |
| Utilities | $150-400/month | Often higher than renting |
Annual/Irregular Costs:
| Category | Budget Rule | Example on $400K home |
|---|---|---|
| Maintenance | 1% of value/year | $4,000/year |
| Repairs | 1-2% of value/year | $4,000-8,000/year |
| Lawn care/landscaping | $1,000-3,000/year | If not DIY |
| Appliance replacement | Save $100-200/month | Water heater, HVAC, etc. |
The "Rule of 1%": Budget at least 1% of your home's value annually for maintenance. A $400,000 home needs a $4,000/year maintenance fund—that's $333/month on top of your mortgage.
Down Payment Strategies
The 20% Down Payment Myth
While 20% down avoids PMI (private mortgage insurance), it's not required. Here are your real options:
| Down Payment | PMI Required? | Loan Types | Trade-offs |
|---|---|---|---|
| 0% | Sometimes | VA, USDA | Higher monthly payment |
| 3% | Yes | Conventional | Lower barrier, higher costs |
| 3.5% | Yes (MIP) | FHA | Easier approval, MIP for life |
| 5-10% | Yes | Conventional | Middle ground |
| 20%+ | No | All | Lowest payment, best rates |
PMI Costs:
- Typically 0.5-1% of loan amount annually
- On a $300,000 loan: $1,500-3,000/year ($125-250/month)
- Can be removed at 20% equity (conventional loans)
- FHA mortgage insurance (MIP) lasts the life of the loan
Down Payment Assistance Programs:
- First-time buyer grants (varies by state/city)
- FHA loans (3.5% down)
- VA loans (0% down for veterans)
- USDA loans (0% down for rural areas)
- Employer assistance programs
- Gift funds from family (with documentation)
Credit Score Impact on Affordability
Your credit score directly affects your interest rate—and a small rate difference has a huge impact over 30 years:
Interest Rate by Credit Score (Approximate 2024):
| Credit Score | Typical Rate | Monthly on $300K | Total Interest |
|---|---|---|---|
| 760+ | 6.5% | $1,896 | $382,560 |
| 700-759 | 6.875% | $1,970 | $409,200 |
| 680-699 | 7.0% | $1,996 | $418,560 |
| 660-679 | 7.25% | $2,046 | $436,560 |
| 620-659 | 7.75% | $2,147 | $472,920 |
The math is stark: A buyer with 620 credit pays $90,360 more in interest than a buyer with 760+ credit on the same $300,000 home.
Before you buy, consider:
- Check your credit report for errors (free at AnnualCreditReport.com)
- Pay down credit card balances below 30% utilization
- Don't open new credit accounts (hard inquiries hurt scores)
- If score is below 680, waiting 6-12 months to improve could save tens of thousands
Frequently Asked Questions
Using the 28% front-end rule, a $75,000 salary ($6,250/month gross) can afford about $1,750/month in housing costs. At current rates, this supports a home price of roughly $275,000-325,000 depending on your down payment, interest rate, and local property taxes. Your actual affordability depends on existing debts and down payment.
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