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Buying a home is a complex financial proposition. With a median sales price of $417,300 in mid-2024, according to the Federal Reserve, U.S. homes typically require substantial down payments and mortgages that span up to 30 years. Interest rates may rise and fall. Lender qualifications can be daunting. With so many moving parts, it's hard to get a handle on what buying a home will cost you, month by month.
To determine how much house you can afford, start by using a mortgage calculator (you'll find one below) to estimate monthly payments, then consider how monthly housing expenses will fit into your overall financial plans and budget. Here are some basic steps to break it down.
How to Determine How Much House You Can Afford
To determine how much house you can afford, you need a read on what it might cost you month to month. Compare your findings against lender requirements and your monthly budget. If you aren't pleased with the results, try a few different approaches.
Here are four steps to getting the information you need.
1. Gather Your Data
You'll need some basic information to start. Be as precise as you can, but estimates are fine if you're just trying to get a general sense of how much house you can afford.
- Home price
- Down payment
- Mortgage amount
- Interest rate
- Loan term
- Mortgage insurance
- Property taxes
- Home insurance
- Income (yours and your co-borrowers')
- Credit score
2. Calculate Your Monthly Payment
Using the mortgage calculator below, estimate your monthly payment based on home price, down payment, interest rate and loan term. If you'd like, use the advanced option to add in costs for property taxes, home insurance, mortgage insurance and any homeowners association (HOA) fees that may apply. Both you and your lender will want to assess whether monthly payments fit your income and budget.
3. Consider How Much You Can Borrow
Lenders look at a variety of factors when deciding whether to approve a loan. They'll examine your income, credit score and report, outstanding debts, down payment, cash reserves and more. It can be difficult to predict exactly how much loan you'll qualify for and what your interest rate and loan terms will be.
One way to get a bit more clarity is to have a lender preapprove you for a loan. You'll supply income information and agree to a credit report; they'll provide a loan offer that shows your rate so you can figure out more accurately what your monthly costs would be.
Learn more >> How to Get Preapproved for a Mortgage
4. Strategize
Once you know how much money you have to put down and how much you can borrow, you'll have a fair idea of how much house you can afford. If needed, you can look for ways to increase your down payment, boost your credit, or shop for a less expensive house (or a more favorable loan) to improve your prospects.
How to Calculate Your Monthly Payments
You can use Experian's free mortgage calculator to estimate your monthly payments.
Mortgage Calculator
†The information provided is for educational purposes only and should not be construed as financial advice. Experian cannot guarantee the accuracy of the results provided. Your lender may charge other fees which have not been factored in this calculation. These results, based on the information provided by you, represent an estimate and you should consult your own financial advisor regarding your particular needs.
Try the full Mortgage Calculator Opens a new window with more features.
To use a mortgage calculator, you'll need four pieces of data:
- Home price: Enter the price of a home you want to buy or start with a typical price for a home in your neighborhood.
- Down payment: Include money you've saved toward a home purchase, gift money you may have received and proceeds from the sale of your current home, if you're planning to move up.
- Loan term: You can choose to pay off your mortgage in 10, 15, 20 or 30 years. Selecting a longer loan term may reduce your monthly payment, but it may increase the total amount of interest you pay over the life of the loan.
- Interest rate: Interest rates can vary from lender to lender and loan to loan. They may also change based on economic factors or even your credit score. Check your bank's website or an online marketplace for typical interest rates on home loans.
Example: Say you want to buy a home that costs $370,000 with a 20% down payment of $74,000. A 30-year mortgage at 6% interest breaks down to monthly loan payments of $1,774.67. Payments on a 15-year mortgage would be $2,497.82. If you found a 30-year mortgage at 5% instead, your monthly payments would be $1,588.99.
Create Multiple Options
A mortgage calculator makes it easy to work out multiple options, so you can try out a range of home prices, loan terms and potential interest rates. You can also see how additional money down might lower your monthly payment or make it possible to shorten your loan term while keeping your monthly payments within reason.
What Else Determines Home Affordability?
You can fine-tune your results by adding in projected costs for common monthly expenses. Use the mortgage calculator's advanced options to factor in these typical home-related expenses:
- Property taxes: Depending on your home's assessed value and tax laws where you live, property taxes can add hundreds or thousands of dollars to your monthly housing costs.
- Home insurance: Home insurance covers liability and damage to your home from events such as fire, windstorms or theft. Although you may not be required by law to carry homeowners insurance, your lender may require it.
- Mortgage insurance: If your down payment is less than 20% of your home's purchase price, you may have to pay private mortgage insurance (PMI) to cover the difference between your down payment and the conventional 20% down payment amount.
- HOA fees: If you buy a condo or a home in a development with a homeowners association, you may have to pay HOA fees for common costs, such as maintenance and insurance for the community.
As you tally up the costs of buying a home, you may also want to take stock of any immediate repairs that need to be done; they'll add to your expenses. Also remember that routine maintenance and home repairs will increase your regular expenses (though not necessarily at predictable times): Be sure to include a line item for repairs and maintenance in your monthly home budget.
How Much Mortgage Do I Qualify For?
Lenders consider your down payment, income, debts, credit, cash reserves and home value when deciding how much they're willing to lend. Here's a quick list of factors lenders consider when evaluating your loan application:
- Income: A steady, stable income demonstrates your ability to repay. As a simple guideline, lenders may limit your loan amount so that monthly housing costs don't exceed 28% of your gross (pretax) income. If you make $10,000 a month, that's $2,800 in monthly mortgage, property tax, home insurance, HOA and PMI payments.
- Debts: Additionally, your housing expenses plus monthly debts (credit card payments, car loans, student loans and personal loans) should not exceed 36% of your gross income—43% for some lenders.
- Credit: Most loan programs have a minimum credit score requirement and, in general, higher credit scores will also secure better interest rates. Lenders also review your credit report to look for late payments, high credit utilization, recent credit applications and major negatives (such as bankruptcies).
- Down payment: Although there are loan programs that let you borrow with zero down payment, most loans require at least some money down. If you can provide 20% of your home's purchase price as a down payment, you can usually avoid the additional cost of PMI.
- Cash reserves: Having at least three to six months' worth of expenses in reserve shows lenders that you can pull through a minor emergency without missing a payment.
Get Preapproved for a More Accurate Estimate
The complex interplay between your income, credit, debts and assets can make it difficult to know exactly where you'll land when you apply for a loan. If you're ready to start home shopping, consider getting preapproved. By putting the application and approval process first, you'll find out how much loan you qualify for before you begin looking. You can apply for preapproval online with many lenders. Not only is preapproval necessary for you to get a better understanding of your loan limits and estimated monthly payments, many home sellers won't even look at offers without a preapproval letter.
Learn more >> How to Shop for a Mortgage
How to Improve Home Affordability
What if your calculations don't match up with housing prices in your area? Try changing your parameters to see whether you can increase your buying power or lower your costs. You may need to pause and focus on saving more money, improving your credit or looking outside your current neighborhood. Here are a few ideas for changing the dynamic.
Improve Your Credit
A higher credit score may help you qualify for a better interest rate and loan terms. Maintaining a solid history of on-time payments, for example, could help boost your credit score over time. Negative information that appears on your credit report, such as late payments, collection accounts or bankruptcy, are removed from your credit reports after seven years.
Learn more >> How to Build Credit to Buy a House
Pay Down Debt
High credit card balances, auto loans and student loan debt affect your debt-to-income ratio—and your ability to secure a mortgage. Again, if you make $10,000 a month, you can afford roughly $2,800 in mortgage, property tax and insurance payments, and an additional $800 in car loans, student loans and credit card payments (to cap your monthly housing and debt payments at 36% of your gross income). Paying off a car loan or credit card balance may help you qualify for a mortgage; it may also help raise your credit score by improving your credit utilization.
Learn more >> What's the Best Strategy to Pay Down Debt?
Increase Your Down Payment
A bigger down payment directly increases your buying power. It may also help you qualify for a bigger loan—or reduce the amount you need to borrow. Taking an extra six months or a year to save up could put you in striking distance of the home you want.
Look for a Lower Interest Rate
Interest rates can vary from one lender to the next, and over time as interest rates fluctuate. Even a small change in APR can translate to significant savings on your monthly payment: Saving 0.5% on a $300,000, 30-year loan could save you nearly $100 per month.
Consider a Less Expensive Home
Setting your sights lower could be the ticket to finding a home you can afford. Consider a smaller house, condo or townhome, or look for a home in a less expensive area. If you're confident in your home renovation skills, you might think about buying a fixer-upper and using sweat equity to create a home that's personalized to your taste.
Boost Your Income
If your income is limiting your ability to secure the mortgage you need, finding a better paying job, going after a promotion or starting a side hustle might improve your prospects. Adding a co-borrower, such as your spouse or partner, to your loan application adds income for your lender to consider.
Frequently Asked Questions
Federal Housing Administration (FHA) mortgages can help you get into a home with less money down and lower credit scores than conventional loans. Depending on your credit score, you may be able to secure an FHA loan with a down payment of as little as a 3.5%. In most areas, FHA loans are limited to $498,257 in 2024. However, in some areas with high housing costs FHA loan limits go as high as $1,149,825.
Although FHA loans can help make home ownership more affordable, they also require PMI, which will increase your monthly payment
If you're an eligible U.S. service member, veteran or surviving spouse, a loan from the U.S. Department of Veterans Affairs (or VA Loan) can help make your home loan more affordable. VA loans may have low interest rates, low or no down payment requirements and no mortgage insurance. VA loans charge a one-time funding fee, which will add to the cost of your loan. They're available through private lenders, including many banks and credit unions.
Lenders use the 28/36 rule to verify that you have enough income to repay your mortgage. According to the rule, your monthly mortgage, property tax and insurance payments should not exceed 28% of your gross income. Additionally, your regular debt payments, including credit card and auto loan payments plus your mortgage and other housing expenses, shouldn't be greater than 36% of your gross monthly income.
How much you spend on a house will depend on how much you've saved for a down payment plus how much you're qualified to borrow. Consider your monthly mortgage payments, additional expenses like HOA fees and property taxes, lender qualifications and your overall budget to get a gauge on what's affordable.
Beyond figuring out what you can spend, also think about how much you're comfortable paying for a house. Your down payment and gross monthly income might qualify you for a $500,000 mortgage, but paying $3,294 monthly for your mortgage, property taxes and home insurance will also limit how much you can spend in other areas of your life.
The Bottom Line
Before you apply for a home loan, check your credit report and FICO® Score☉ to get a clear view of what lenders will see as they review your loan application. You can view your payment history, look for negative information like collection accounts and even check for unknown accounts that may be signs of identity theft.
Taking the time to fully understand your options is the first step in determining how much house you can afford. Once you know what a loan will cost and whether you're likely to qualify, you can start looking at homes that fit your budget.