Use our affordability calculator to estimate a comfortable mortgage amount based on your current budget. Enter details about your income, down payment and monthly debts to determine how much to spend on a house.
To begin, fill in the fields below on your left.
It depends on your household income, monthly debt payments, and the amount of money you can put toward a down payment. Our mortgage affordability calculator above can help determine a comfortable mortgage payment for you.
A good rule of thumb is that your total mortgage should be no more than 28% of your pre-tax monthly income. You can find this by multiplying your income by 28, then dividing that by 100.
For example, let’s say your pre-tax monthly income is $5,000. Your maximum monthly mortgage payment would then be $1,400: $5,000 x 28 = $140,000. $140,000 ÷ 100 = $1,400
An FHA loan is a mortgage issued by an FHA-approved lender and insured by the Federal Housing Administration (FHA). Designed for low-to-moderate-income borrowers, FHA loans require a lower minimum down payment (as low as 3.5%) and credit score than many conventional loans.
With a VA loan you’re not required to make a down payment, and you don’t have to pay PMI.
The 28 part of the rule is that you shouldn’t spend more than 28% of your pre-tax monthly income on home-related expenses. The 36 part is that you shouldn’t spend more than 36% of your income on monthly debt payments, including your mortgage, credit cards, and other loans such as auto and student loans.
It’s a good rule of thumb to start with, but it’s also important to consider your entire financial picture when evaluating home-related expenses.
When gauging home affordability, consider the following factors:
- Monthly income
- Your available funds for a down payment and closing costs
- Your monthly debts and expenses
The following will help your chances of getting a lower interest rate:
- Good credit score
- Strong employment history (at least 2 years of work with no gaps)
- As much savings as possible for a down payment. If you make a down payment of at least 20% of your home’s value, you won’t need to pay PMI.
- Consider different types of mortgages. For example, if you can afford higher monthly payments, a 15-year fixed mortgage term will have lower interest rates.
- Shop different lenders to compare rates
If you make a down payment of at least 20% of your home’s purchase price, you won’t need to pay PMI.
Depending on the mortgage, down payments lower than 20% are acceptable, and can go as low as 3% in some cases, but you’ll have to pay PMI in addition to your mortgage.
As a general rule of thumb, you should always have 3 months’ worth of living expenses on hand, including mortgage, in the event of an unexpected circumstance.
It’s also advised to consider other home-buying expenses such as closing costs.
It’s wise to purchase a home below your budget, because you’ll have more money left over each month for savings or other expenses.
I There are a few reasons why it may be wise to wait to purchase a home:
- More time to save for a down payment
- Build up your emergency fund
- Build credit score
- Wait for better market conditions (lower interest rates, better home prices if market is declining)
Improving your debt to income ratio means lowering the percentage. Paying off your debts such as loans and credit cards, and increasing your income will help you achieve this.
Calculate your monthly debt by adding up all of your monthly minimum payments toward loans and credit cards.
A credit score is a number assigned to you to represent your creditworthiness. Lenders use it to determine how likely you are to make on-time payments on your loans.
Different credit scoring models calculate credit scores based on a variety of factors. Mint utilizes the VantageScore model, which measures credit on a scale ranging from 300 to 850. Your VantageScore is determined by six factors:
- Payment history
- Age and types of credit
- Credit utilization
- Total balances and debt
- Recent credit inquiries
- Available credit
While there’s no single way to define a good credit score or bad credit score, VantageScore does provide guidance on grading score on a scale of A to F:
- Grade A: 781 - 850
- Grade B: 720 - 780
- Grade C: 658 - 719
- Grade D: 601 - 657
- Grade F: 300 - 600
Debt to income ratio
Debt to income (DTI) ratio is a percentage that expresses how much of your pre-tax annual income is dedicated to your monthly debt payments. Lenders look at DTI as a way of gauging your ability to make on-time monthly payments on a loan.
The lower your DTI percentage is, the more favorably lenders will look at you. A lower DTI indicates a healthy balance between debt and income. In general, mortgage lenders look for a DTI that’s no greater than 36%.
A down payment is a cash payment that you make at the onset of a large purchase, such as a new home. It’s represented by a percentage of the total price of the purchase.
In the United States, the ideal down payment for a house is 20%, but people typically make down payments from anywhere between 5% and 20% depending on the loan.
Aside from owing less on your home, there are other advantages to putting at least 20% toward your down payment, such as not having to pay private mortgage insurance (PMI). If you put down less than 20%, you’ll need to pay PMI because lenders see the loan as higher risk.
Private mortgage insurance (PMI)
PMI is insurance that some home lenders require you to pay if you make a down payment of less than 20%. PMI is designed to protect the lender, not the buyer, in the event that the buyer defaults on their payments.
You can avoid paying PMI by purchasing a less expensive home, or by simply waiting until you’re able to afford at least 20% for your down payment. Additionally, some loans do not require PMI with a down payment that is less than 20%, so it’s important to explore and compare your options.
An interest rate is the amount that a lender charges you in exchange for providing the loan, expressed as a percentage of the loan amount.
Your creditworthiness determines the interest rate a lender will offer to charge you. For example, if you have a high credit score and your debt to income ratio (DTI) is less than 36%, you will receive a lower and thus better interest rate. If you have a lower credit score and your DTI is higher than 36%, you’ll likely be charged a higher interest rate because the lender sees the loan as higher risk.
The length of time in which you agree to repay your loan entirely. Most mortgages have either a 15 or 30-year term.
Property tax is tax paid on real estate by the owner of the property. It is dependent upon the location of the property and is calculated by the local government.
Homeowners insurance is property insurance that provides coverage if damages or losses occur to the home or property itself, or to valuables or assets inside the home. It also provides liability coverage to protect the homeowner if another person suffers personal injury or property damages while on the homeowner’s property.
If a person moves into a residence that is part of a homeowners association (HOA), they will have to pay monthly fees to the HOA.
The HOA uses these fees to maintain the neighborhood, especially when there are community amenities such as a neighborhood clubhouse or park. People who live in condominiums frequently have to pay HOA fees because of the upkeep of common areas, such as landscaping or the community swimming pool. These fees can also cover shared utility costs such as water and trash.
HOA fees can vary based on the services that the HOA provides. It’s important for potential homebuyers to thoroughly research HOAs and the fees they impose, in the areas in which they’re considering purchasing a house.
Getting pre-qualified for purchasing a home happens after a person gives preliminary information to a lender, such as income, debt, and assets. This allows the lender to initially assess the potential amount of loan they might issue to the person. While pre-qualification is a good first step in the homebuying process, it is not an approval for a loan. It’s an initial evaluation of how much loan the person may be able to get.
It’s important to note that pre-approval is very different from pre-qualification, in that pre-approval requires a much more thorough investigation and credit check of the potential homebuyer, to proceed to the next step in the homebuying process.