How Much Home Can You Afford?

A lot more than you might imagine goes into determining how much home you can afford. The purpose of this post is to explore some of those inputs.

In order to begin to calculate what you can afford, you need to understand your household income, monthly debts, and the amount you have available as a down payment. These factors, in combination with the type of loan (VA, FHA, Conventional, Private), current interest rates, and your credit score will determine your monthly payment. A conservative rule of thumb is that your housing expenses (including taxes and insurance) should be less than 28% of your monthly income. Nerdwallet has a great calculator to help you estimate monthly affordability.

You will need a minimum of 20% to put down in order to avoid private mortgage insurance (PMI), but you can put as little as 3.5% down with an FHA loan. If you are, or were, in the military you are likely to qualify for a VA loan, which doesn’t require any down payment at all.

Another good rule of thumb is to keep your overall debt, including housing, to less than 36% of your gross household income.

Maximize the amount of home you can afford by securing a loan with a low interest rate. I work with a number of lenders and would be happy to refer you to someone that can help you explore your options.

Check out this related post on preparing yourself to buy a home for additional tips.

Contact me if you are interested in exploring more strategies to maximize the amount of home you can afford.