Buying a new home — especially if it’s your first — is a thrilling financial milestone. Congrats!
Now a word of caution: Your home is one of the largest purchases of your lifetime. The ensuing mortgage, taxes, and maintenance expenses will impact your finances for the next 15-30 years. It’s critical that you choose a home that you can afford.
Use our home affordability calculator to see if your target fits your budget:
How the home affordability calculator works
This calculator uses these guidelines for determining how much house you can afford, which are similar to common underwriting criteria that mortgage lenders use.
- Your total mortgage payment should be no more than 28 percent of your gross monthly income
- Your total debt payments (existing plus the new mortgage) should be no more than 40 percent of your gross monthly income.
This is a simple calculator and does not take into account factors that will increase your monthly housing payment — namely property taxes, homeowners insurance and — if you put down less than 20 percent of the home value — private mortgage insurance (PMI).
Just because you’re approved doesn’t mean you can afford it
Because we didn’t include taxes and insurance, the calculator is conservative enough so that you could likely still be approved for a mortgage at this level after adding in taxes and insurance. That’s our goal: To give you a sense of the maximum home price and mortgage payment for which you might reasonably be approved (with good credit, of course).
Realistically, however, you should aim to keep the ratio of your mortgage payment as low as possible. The more money you aren’t spending on your home, the more money you have to save. This won’t be possible in all real estate markets, and it’s possible — if you live in Northern California or New York City, for example — that you may have to spend more than this calculator suggests to be able to buy at all.
Compare today’s top mortgage rates: