How much house can you afford?
Figuring how much house you can comfortably afford can be complicated, so know your budget before you begin shopping.
It’s important to determine how much of a house you can afford when you’re starting the process.
Learn how to calculate your debt-to-income ratio, an important factor in determining your final mortgage amount.
Learn how property taxes can provide valuable improvements and services in the surrounding community.
You may be required to have Private Mortgage Insurance (PMI) if you’re putting less than 20% down.
Learn how homeowners insurance will protect your home and your investment.
How much home can you afford?
Take the first step and get prequalified.
Here are some things to consider before you decide to buy a house:
The down payment
You’ll need money for your down payment—typically 10-20% of the purchase price depending on the type of mortgage, and you may be responsible for closing costs, as well. Consider using some savings, a financial gift or proceeds from a previous home sale for the down payment and closing costs. If your down payment on a conventional loan is less than 20%, you must pay private mortgage insurance (PMI) , which covers the lender if you stop paying your mortgage and default on your loan. PMI usually costs less than 1% of the outstanding loan balance, so putting 20% down can save you thousands of dollars over the life of the loan. Learn more about down payment requirements.
Your credit score
Banks look at your credit score, your income and the value of the home you’re buying to determine how much they’ll lend you. Credit scores range from 300 to 850. A higher credit score may lower your interest rate—and lower your monthly payment. If you’ve recently missed payments or maxed out your credit cards, you may consider waiting to purchase a home until your credit improves so you can qualify for a lower interest rate. Learn more about credit scores and how you can improve yours.
Is my debt-to-income ratio less than 43%?
All of your monthly payments toward your existing and future debts should usually be less than 43% of your monthly income. However, the amount you qualify for based on this calculation may not be suitable for you. You should review your personal situation and work with a financial advisor to decide how much you can comfortably afford. We’ll verify your income during the application process. To calculate your debt-to-income ratio, divide your monthly payments by your monthly gross income.
Use this formula to get an idea of your debt-to-income ratio: A/B = debt-to-income ratio:
A= Your total monthly payments (such as credit cards, student loans, car loans or leases; also include an estimated mortgage payment).
B= Your average monthly gross income (divide your annual salary by 12).
For example, if your monthly income is $5,000 and your monthly debts and future expenses are $1,000, your debt-to-income ratio would be 20%.
If your debt-to-income ratio is more than 43%, you still may be eligible for a mortgage if another person (such as a spouse, relative or someone who lives in the home) completes the application with you. We'll ask you for the co-applicant information during the application process.
If you can’t afford to buy in the neighborhood where you want to live, or if you’ll have a much longer commute from the places you can afford to buy, renting may be the better option for now.
How much can I afford?
Shopping for a new home? Find out how much you can afford.
Understand the cost of homeownership
Your mortgage payment is just one of the expenses of buying a home. You’ll face a number of one-time fees, as well as new monthly and annual costs. The table below describes some of the fees and expenses you can expect to pay.
|Homeownership expenses||What||How often|
|Before you buy a house||Credit report||One-time fee (credited at closing)|
|Home appraisal||One-time fee|
|Home inspection||One-time fee (typically between $200-$500)|
|Termite inspection||One-time fee|
|During the homebuying process||Application fee||One-time fee|
|Earnest money||One-time fee (credited at closing)|
|Origination fees||One-time fee|
|Closing costs||One-time fee (typically between 2-6% of the loan amount)|
|Title insurance||One-time fee|
|After you buy a house||Property taxes||Monthly|
|Private mortgage insurance (PMI)||Monthly|
|Homeowners, hazard or flood insurance||Monthly through an escrow account or annually|
|Homeowners association dues||Monthly and/or annually|
|Utilities (water, gas, sewage, etc.)||Monthly or quarterly|
|Maintenance & repairs||Ongoing|
|Lawn care and landscaping||Ongoing|