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.
Monthly mortgage payments
Your mortgage payment should be no more than 28% of your gross monthly income. So, if your monthly gross income is $5,000, you might be able to afford a $1,400 monthly mortgage payment. Make sure your income is steady and reliable. If there’s a chance you could be laid off soon, or if you’re not 100% confident you’ll be able to make your mortgage payment every month, it may make sense to consider other options than a mortgage.
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|