Fast Tips for First-Time Home Buyers | Real Estate | U.S. News
19 Fast Tips for First-Time Homebuyers · 1. Get Preapproved for a Mortgage · 2. Make Your Own Home Buying Budget · 3. Read Up on School ...
spend on a home
You don't just want to rely on your preapproval to determine how much you should <anchor>spend on a home</anchor>. You should crunch your own numbers. "It's not just a matter of what a bank will lend you," says Herman. "It's a matter of what you're comfortable spending."
How Much House Can I Afford? | Mortgages | U.S. News
How Much House Can I Afford? \| Mortgages \| U.S. News

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1. How Much House Can I Afford?
2. [Mortgages](https://money.usnews.com/loans/mortgages)
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# How Much House Can I Afford?

Home affordability is usually more than what lenders say you can borrow.

![](https://www.usnews.com/object/image/0000018a-419b-d092-a9ee-55dbece30000/image0.jpeg?update-time=1693317884360&size=responsiveSquare300)

By[Jamie Johnson](https://www.usnews.com/topics/author/jamie-johnson)

\|

Edited by[Emily Roth](https://www.usnews.com/topics/author/emily-roth)

Reviewed by[Adriana Ocañas](https://www.usnews.com/topics/author/adriana-ocanas)

\|

Jan. 22, 2024

![](https://www.usnews.com/object/image/0000018a-419b-d092-a9ee-55dbece30000/image0.jpeg?update-time=1693317884360&size=responsiveSquare300)

By[Jamie Johnson](https://www.usnews.com/topics/author/jamie-johnson)

\|

Reviewed by[Adriana Ocañas](https://www.usnews.com/topics/author/adriana-ocanas)

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Edited by[Emily Roth](https://www.usnews.com/topics/author/emily-roth)

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Jan. 22, 2024, at 3:38 p.m.

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How Much House Can I Afford?

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A home should fit within your budget so you don't end up with mortgage payments that aren't affordable.

### Key Takeaways:

- Mortgage lenders rely on many factors when considering your loan amount, like your down payment, income and debt-to-income ratio.
- Most lenders use the 28/36 rule to determine how much house you can afford, which uses percentages to reflect how much money you can use toward housing costs without breaking the bank.
- Another way to figure out how much house you can afford is by using a [mortgage affordability calculator](https://money.usnews.com/loans/mortgages/mortgage-calculator).

Figuring out how much you can spend on your monthly mortgage payment is the first step toward homeownership. The 28/36 rule, or a mortgage affordability calculator, can help you find an amount you can comfortably pay. However, many different factors affect what you can afford to spend, including your income, debt and current interest rates.

Read:

[Best Mortgage Lenders](https://money.usnews.com/loans/mortgages/best-mortgage-lenders)

## How to Figure Out What You Can Afford

When you apply for a mortgage, your lender will tell you how much they're willing to let you borrow in order for you to buy a house. They'll come up with a number based on the following factors:

- **Your gross income.** This is your pay before taxes and deductions.
- **The size of your down payment.** The larger it is, the more you'll be able to borrow.
- **Your total debt.** This includes student loans, auto or credit card payments.
- **Your credit score.** A higher score generally leads to better rates and terms.
- **Additional costs.** Factor in costs like property taxes and homeowners insurance.

However, you shouldn't necessarily spend the entire amount the lender ends up giving you. If your house payment makes it almost impossible for you to build an emergency fund or save for retirement, you should find a more affordable home.

## Compare Top Mortgage Lenders

Advertiser Disclosure

Lender

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Learn More[New American Funding](https://money.usnews.com/loans/mortgages/reviews/newamericanfunding-mortgage)

4.5

Min. Down Payment3%Min. Credit Score620Lender

[![](https://www.usnews.com/object/image/0000017d-77bb-df19-af7f-f7ffc3dc0000/rocket.png?update-time=1653409601626&size=responsiveFlow230)](https://secure.money.com/pr/o0fc8d4032ef?s1={{USN_CLICK_ID}})

[See Offers](https://secure.money.com/pr/o0fc8d4032ef?s1={{USN_CLICK_ID}})
Learn More[Rocket Mortgage](https://money.usnews.com/loans/mortgages/reviews/rocket-mortgage)

4.7

Min. Down Payment1%Min. Credit ScoreNot disclosedLender

[![](https://www.usnews.com/object/image/00000169-9248-dff4-affd-92c916f10000/nbkc-logo-600x600px-blue.png?update-time=1695919450630&size=responsiveFlow230)](https://nbkc-usnews.secure-clix.com/?clickID={{USN_CLICK_ID}})

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Learn More[NBKC Bank](https://money.usnews.com/loans/mortgages/reviews/nbkcbank-mortgage)

4.5

Min. Down Payment3%Min. Credit Score620

[![](https://www.usnews.com/object/image/00000191-e282-d045-a3f3-e7a3df850000/1000x600-ck-logo-image.png?update-time=1726082147615&size=responsiveFlow230)](https://www.newamericanfunding.com/lfj/usnews/?refinance=33699017&purchase=33699030&phone=8887870511&utm_source=Usnews&utm_medium=content&utm_content=default%20&utm_campaign=Usnews_Pur&lp=pr&lt=all&sub_id=https://money.usnews.com/loans/mortgages/articles/how-much-house-can-i-afford&pub_id={{USN_CLICK_ID}}&utm_term=default)

[New American Funding](https://money.usnews.com/loans/mortgages/reviews/newamericanfunding-mortgage)

4.5

Lender[See Offers](https://www.newamericanfunding.com/lfj/usnews/?refinance=33699017&purchase=33699030&phone=8887870511&utm_source=Usnews&utm_medium=content&utm_content=default%20&utm_campaign=Usnews_Pur&lp=pr&lt=all&sub_id=https://money.usnews.com/loans/mortgages/articles/how-much-house-can-i-afford&pub_id={{USN_CLICK_ID}}&utm_term=default)Learn More3%Min. Down Payment620Min. Credit Score
[![](https://www.usnews.com/object/image/0000017d-77bb-df19-af7f-f7ffc3dc0000/rocket.png?update-time=1653409601626&size=responsiveFlow230)](https://secure.money.com/pr/o0fc8d4032ef?s1={{USN_CLICK_ID}})

[Rocket Mortgage](https://money.usnews.com/loans/mortgages/reviews/rocket-mortgage)

4.7

Lender[See Offers](https://secure.money.com/pr/o0fc8d4032ef?s1={{USN_CLICK_ID}})Learn More1%Min. Down PaymentNot disclosedMin. Credit Score
[![](https://www.usnews.com/object/image/00000169-9248-dff4-affd-92c916f10000/nbkc-logo-600x600px-blue.png?update-time=1695919450630&size=responsiveFlow230)](https://nbkc-usnews.secure-clix.com/?clickID={{USN_CLICK_ID}})

[NBKC Bank](https://money.usnews.com/loans/mortgages/reviews/nbkcbank-mortgage)

4.5

Lender[See Offers](https://nbkc-usnews.secure-clix.com/?clickID={{USN_CLICK_ID}})Learn More3%Min. Down Payment620Min. Credit Score

Lender

Learn More

Min. Down Payment

Min. Credit Score

[![](https://www.usnews.com/object/image/00000191-e282-d045-a3f3-e7a3df850000/1000x600-ck-logo-image.png?update-time=1726082147615&size=responsiveFlow230)](https://www.newamericanfunding.com/lfj/usnews/?refinance=33699017&purchase=33699030&phone=8887870511&utm_source=Usnews&utm_medium=content&utm_content=default%20&utm_campaign=Usnews_Pur&lp=pr&lt=all&sub_id=https://money.usnews.com/loans/mortgages/articles/how-much-house-can-i-afford&pub_id={{USN_CLICK_ID}}&utm_term=default)

[New American Funding](https://money.usnews.com/loans/mortgages/reviews/newamericanfunding-mortgage)

4.5

[See Offers](https://www.newamericanfunding.com/lfj/usnews/?refinance=33699017&purchase=33699030&phone=8887870511&utm_source=Usnews&utm_medium=content&utm_content=default%20&utm_campaign=Usnews_Pur&lp=pr&lt=all&sub_id=https://money.usnews.com/loans/mortgages/articles/how-much-house-can-i-afford&pub_id={{USN_CLICK_ID}}&utm_term=default)3%620
[![](https://www.usnews.com/object/image/0000017d-77bb-df19-af7f-f7ffc3dc0000/rocket.png?update-time=1653409601626&size=responsiveFlow230)](https://secure.money.com/pr/o0fc8d4032ef?s1={{USN_CLICK_ID}})

[Rocket Mortgage](https://money.usnews.com/loans/mortgages/reviews/rocket-mortgage)

4.7

[See Offers](https://secure.money.com/pr/o0fc8d4032ef?s1={{USN_CLICK_ID}})1%Not disclosed
[![](https://www.usnews.com/object/image/00000169-9248-dff4-affd-92c916f10000/nbkc-logo-600x600px-blue.png?update-time=1695919450630&size=responsiveFlow230)](https://nbkc-usnews.secure-clix.com/?clickID={{USN_CLICK_ID}})

[NBKC Bank](https://money.usnews.com/loans/mortgages/reviews/nbkcbank-mortgage)

4.5

[See Offers](https://nbkc-usnews.secure-clix.com/?clickID={{USN_CLICK_ID}})3%620

Show More

## How Does Your Debt-to-Income Ratio Impact Affordability?

Your debt-to-income (DTI) ratio is your monthly reported debt payments divided by your income. So $4,000 in monthly debt divided by $10,000 in monthly income equals a DTI ratio of 40%.

Lenders use your DTI ratio to determine whether you can afford your monthly mortgage payments and how likely you are to repay the loan. Jay Garvens, business manager at Churchill Mortgage, says the easiest way to understand your DTI ratio is to look at any payments reported to the credit bureaus.

Your total debt can prevent you from qualifying for a mortgage, even if you have a high monthly income. Different types of loans have different standards regarding your DTI ratio. For example, Fannie Mae sets the maximum DTI ratio for conventional loans at 36%, but this can be exceeded by up to 45% if you meet the required credit score. Along with your credit score, lenders also look at the reserves requirement, which means that you have all of the mandatory housing costs to cover as little as one month or six months – and possibly even longer.

## The 28/36 Rule – What It Is and How It Works

The 28/36 rule is a standard most lenders use to determine how much of your current income can go toward a mortgage payment. The first half of this rule states that 28% of your gross income is the maximum amount that should go toward your monthly housing expenses. That figure includes your principal, interest, property taxes and homeowners insurance.

The second half states that no more than 36% of your gross income should be spent on housing costs and all recurring debt. Recurring debt could include things like credit cards, auto loans or personal loans.

For example, let's say your gross monthly income is $5,000. Using the 28/36 rule, no more than $1,400 should go toward your housing costs, and no more than $1,800 should be spent on total debt.

Garvens says that government-sponsored agencies have limitations of 41% to 49% and that some VA and FHA loans see DTI ratios up to 55% still getting approved for financing. But regardless of what your lender will approve, he doesn't recommend exceeding your budget's maximum.

"I'm on the conservative side, so I advise against exceeding 25% of your monthly take-home pay on a mortgage payment, or purchasing a home more than four times your annual take-home pay."

[**How to Get Preapproved for a Mortgage** \
Preapproval differs slightly from prequalification, but knowing how both work can be helpful.](https://money.usnews.com/loans/mortgages/articles/how-to-get-preapproved-for-a-mortgage)

[Kim Porter](https://www.usnews.com/topics/author/kim-porter) Dec. 6, 2023

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Read:

[Best Mortgage Refinance Lenders.](https://money.usnews.com/loans/mortgages/mortgage-refinance-lenders)

## How Important Is Your Credit Score?

Your credit score is one of the biggest factors that affects your ability to qualify for a mortgage. A credit score above 740 is considered very good and will help you qualify for the lowest rates and best terms on your mortgage.

Qualifying for the lowest rates possible will lower your monthly mortgage payment and allow you to pay less interest over the life of the loan. But if your credit score is low, lenders may not be willing to let you borrow as much on your mortgage and will come with higher rates.

Calculate:

[Use Our Free Mortgage Calculator to Estimate Your Monthly Payments.](https://money.usnews.com/loans/mortgages/mortgage-calculator)

## How Much Down Payment Do I Need?

Ideally, your down payment would be at least 20% of the total cost of the home. But if you're buying a $400,000 home, that means your down payment would be $80,000, which can be a difficult amount to save for many Americans.

Fortunately, many lenders will let you buy a home with a down payment as low as 3%. However, if you put down less than 20%, most lenders will make you pay for private mortgage insurance (PMI), which will add to your monthly costs. PMI protects your lender if you default on the loan.

[**Why Your Mortgage Loan Was Denied** \
There are many potential reasons for denial, but there is always a path toward approval.](https://money.usnews.com/loans/mortgages/why-the-underwriter-denied-your-mortgage-loan)

[Ben Luthi](https://www.usnews.com/topics/author/ben-luthi) Jan. 18, 2024

![Frustrated couple checking bills at home using laptop.](https://www.usnews.com/object/image/0000018d-1cf9-de1c-a1bd-1cfd55820000/https-media-gettyimages-com-id-1159334654-photo-frustrated-couple-checking-bills-at-home-using-laptop.jpg?update-time=1705588167694&size=responsiveSquare150)

## How Much Mortgage Can I Afford?

If you're on the fence about how much house you can afford, using a [mortgage affordability calculator](https://money.usnews.com/loans/mortgages/mortgage-calculator) is a good place to start. This tool will tell you how expensive of a home you can buy based on your income and expenses, including monthly debt payments.

When using the calculator, you'll start by inputting the anticipated interest rate, loan amount, term and down payment. When you include your expected HOA dues, insurance premiums and property taxes, that will help you come up with a more accurate estimate.

Using a mortgage affordability calculator is crucial because circumstances can vary substantially, even among borrowers with the same income. If your annual salary is $100,000 but you spend $1,000 on monthly debt payments, your home affordability is lower than someone with the same salary who only pays $100 per month on debt payments.

Read:

[Best FHA Loans.](https://money.usnews.com/loans/mortgages/fha-loans)

## How Do interest Rates Affect Affordability?

According to Matthew Sanford, the assistant vice president of mortgage lending at Skyla Federal Credit Union, interest rates can have a massive effect on affordability. "As interest rates increase, it increases your proposed monthly housing expense. As your monthly housing expense increases, it increases your DTI and reduces affordability."

"Interest rate decreases have the opposite effect and help improve affordability. Since you are paying less each month in interest, you have more money available." For example, if you take out a 30-year $300,000 mortgage at a 6% interest rate, your monthly principal and interest payments would be $1,800.

If rates increase to 7%, your monthly mortgage payment is now $1,995. However, if they decrease to 5%, you're now only paying $1,608. Plus, these changes significantly impact how much you'll pay over the life of the loan.

Tags: [loans](https://www.usnews.com/topics/subjects/loans), [credit](https://www.usnews.com/topics/subjects/credit)

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