Crunching the Numbers: How Much House Can I Afford?

If you’re looking to purchase a home, one of the most important questions you’ll need to ask yourself is: “How much house can I afford?” The answer to this question will depend on a number of factors, including your income, debt, credit score, and the size of your down payment. In this article, we’ll explore these factors in more detail and give you some tips on how to determine how much house you can afford.

first time home buyer

  1. Determine your monthly income

The first step in figuring out how much house you can afford is to determine your monthly income. This includes your salary or wages, any bonuses or commissions you may receive, and any other sources of income you have, such as rental income or investments. Make sure to include all sources of income that you expect to receive on a regular basis.

  1. Calculate your debt-to-income ratio

Your debt-to-income ratio is one of the most important factors that lenders use to determine how much house you can afford. This ratio compares your monthly debt payments to your monthly income. To calculate your debt-to-income ratio, add up all of your monthly debt payments (including credit card payments, car loans, student loans, and any other loans or debts you have) and divide that number by your monthly income. Multiply the result by 100 to get a percentage.

Most lenders prefer to see a debt-to-income ratio of 43% or lower. If your ratio is higher than that, you may have trouble getting approved for a mortgage. If your ratio is lower than that, you may be able to afford a larger mortgage.

  1. Check your credit score

Your credit score is another important factor that lenders use to determine how much house you can afford. Your credit score is a number that represents your creditworthiness. The higher your score, the more likely you are to be approved for a mortgage and to receive a lower interest rate.

You can check your credit score for free on a number of websites, including Credit Karma and Credit Sesame. If your score is lower than you’d like, there are a number of steps you can take to improve it, such as paying down debt, disputing errors on your credit report, and paying your bills on time.

  1. Consider your down payment

Your down payment is the amount of money you’ll need to put down on your home when you purchase it. Most lenders require a down payment of at least 20% of the home’s purchase price in order to avoid private mortgage insurance (PMI), which is an additional monthly cost that protects the lender in case you default on your loan.

If you don’t have a 20% down payment, you may still be able to purchase a home, but you’ll likely have to pay PMI. This can add hundreds of dollars to your monthly mortgage payment, so it’s important to factor it into your calculations when figuring out how much house you can afford.

  1. Use an affordability calculator

One of the easiest ways to determine how much house you can afford is to use an online affordability calculator. These calculators take into account your income, debt, credit score, and down payment, and give you an estimate of how much house you can afford.

Most affordability calculators will also factor in other costs associated with homeownership, such as property taxes, homeowners insurance, and maintenance costs. Keep in mind that these costs can vary widely depending on where you live, so it’s important to do your research and factor them into your calculations.

  1. Get pre-approved for a mortgage

Once you’ve done your calculations and have a rough idea of how much house you can afford, it’s a good idea to get pre-approved for a mortgage. This involves submitting an application to a lender and providing documentation of your income, debt, and credit score.


pre-approved for a mortgage can give you a more accurate idea of how much you’ll be able to borrow and at what interest rate. It can also help you stand out to sellers when you’re making an offer on a home, as it shows that you’re serious about buying and have already taken steps to secure financing.

When you get pre-approved for a mortgage, the lender will give you a pre-approval letter, which you can show to sellers to demonstrate your financial capability. Keep in mind that pre-approval doesn’t guarantee that you’ll be approved for a mortgage, but it does give you a better idea of what you can afford and can help you narrow down your search for a home.

  1. Consider other expenses

When determining how much house you can afford, it’s important to consider other expenses beyond just your monthly mortgage payment. Owning a home comes with a number of additional costs, such as property taxes, homeowners insurance, maintenance costs, and utilities.

You should factor these costs into your budget when determining how much house you can afford. It’s also a good idea to have some savings set aside for unexpected expenses, such as repairs or emergencies.

  1. Don’t overextend yourself

While it can be tempting to stretch your budget to buy the biggest and best home you can afford, it’s important to be realistic about what you can truly afford. If you overextend yourself, you could end up in a situation where you’re struggling to make your mortgage payments each month, which can be incredibly stressful and can even lead to foreclosure.

When determining how much house you can afford, it’s important to take a long-term view and factor in any future expenses or changes in your income or circumstances. You don’t want to be house-poor, where all of your income is going towards your mortgage payment and you’re unable to enjoy other aspects of your life.

TL;DR Determining how much house you can afford is an important step in the home-buying process. It requires taking a realistic look at your income, debt, credit score, and down payment, as well as factoring in other expenses associated with homeownership. By doing your research and getting pre-approved for a mortgage, you can ensure that you’re making a smart financial decision and buying a home that you can truly afford.

Updated: April 15, 2023 at 10:41pm

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