How Much Home Can I Afford To Buy?

November 06, 2020 by Dan Green

How much house can you afford? Use our online home affordability calculator. It was designed by a mortgage loan officer who wants to help you get the truth.

Hard Truth: Most Online Mortgage Calculators Don’t Work

Nearly every home search starts with the question: “How much house can I afford?”

Everyone wants to know that number: renters, real estate investors, and buyers on their third or fourth home, even.

Knowing how much home you can afford is the literal starting line for How To Buy A House, which is why it’s good to find your housing budget before you start searching online.

So, how do you find the price range of homes you can afford?

Many people turn to online mortgage calculators. But, unfortunately, those calculators don’t usually work. They’re “dumb” because they’re built for the masses. All they do is combine your income, your debts, and your desired monthly payment to spit back a generic “maximum purchase price” based on outdated rules of thumb, like the 36% Rule.

Mortgage lending doesn’t work that way. It’s not about the masses. It’s about the individual.

So, when you want to know how much house you can afford, put yourself first. Make it about you. Ask yourself: “How much do I want to spend on housing each month”.

Once you can do that, you’ll have all the information you need, because we built a homeowner-focused mortgage calculator to help you do the rest.

The Best Mortgage Calculator For Home Buyers

Home Affordability Is What You Pay Each Month

To find out how much house you can buy, look past online mortgage calculators. They’re built for the masses.

And, ignore the generic online articles on topics like debt-to-income ratio, maximum mortgage guidelines, and rules of thumb. Look at the bylines, and you’ll see they’re written by people who don’t do mortgages and just don’t know.

You can do better for yourself.

Remember: there’s nuance when you ask “How much home can I afford?”. It’s not a direct question. You’re trying to put a group of questions together about your finances, to get a general idea of what you can do.

What you’re really asking is:

  • As I’m paying for this house, how will I keep building my savings?
  • When I own this home, how will I pay for upkeep and repair each year?
  • How much down payment do I have to make for the best rate?

And, when we reframe the question about your maximum home purchase price, we realize that it’s not about the purchase price at all — it’s about the monthly payment.

That’s what home affordability is. It’s about making payments on a home each month without feeling stressed, and still having money left over for savings, for repairs, and for life.

This payment-centric look at home affordability is how to shop for homes, and it’s way more sensible than shopping by price range.

And, for the unconvinced, here’s an example of two homes for the same price where one home is way less affordable.

Two Homes Can Have The Same Price, But Cost Different Amounts

Let’s consider two real-world homes for sale.

The homes are listed for sale at the same price. They’re built by the same home builder, with identical floor plans and finishes, and they’re very much the same in every way.

However, because the homes are on neighboring streets, one is closer to the nearest police and fire station; and, exists in a different, tax-advantaged census tract.

These two homes — both listed at $300,000 — are suddenly not the same. The home nearer to public services, and in the tax-break census tract, is less expensive to own.

Home 1 Home 2
Home Sale Listing Price $300,000 $300,000
Proximity to a fire station? Closer Farther
Proximity to a police station? Closer Farther
In a tax-advantaged census tract? Yes No

Here’s what’s going on.

Your monthly mortgage payment contains four parts:

  1. Partial repayment of your original loan balance
  2. Interest on the money you’re borrowing
  3. Payment to your local taxing authority for real estate taxes
  4. Payment to your insurance company for homeowners insurance

The repayment-and-interest portion of your payment is calculated using a combination of your loan size and your mortgage rate; and, when you live in a tax-advantaged census tract, you can access lower mortgage rates as compared to everyone else.

You also pay fewer real estate taxes.

Additionally, because Home 1 is closer to the police station and fire station, its owner will pay less for homeowners insurance, auto insurance, and home security systems.

Very similar houses, very different costs.

How Much Should You Pay For A House?

The question “How much home can I afford?” is phrased weirdly. You don’t really want to know how much house you can afford.

You want to know: “What price house can I get for x dollars per month?”

You want to know how far your monthly payment can stretch you. And, that means you have to consider:

  • How much will real estate taxes cost for this house?
  • How much will homeowners insurance cost for this house?
  • How much will I have to spend on maintenance and upkeep for this house?

Most online mortgage calculators don’t answer those questions. Heck, they don’t even acknowledge them! It’s why we built the best mortgage calculator you’ll find. It mirrors the way you think.

Our mortgage calculator includes all of what you need, including today’s mortgage rates; your expected monthly payment based on your down payment, loan type, and term; and, your expected monthly payments for real estate tax and insurance.

Our mortgage tool will tell the maximum home purchase price for the budget you’ve set. All you’ll need to do is determine what you want from your house.

What Is The Best Mortgage For Your House?

A great mortgage calculator improves the home-buying process. As the home buyer, though, it’s your responsibility to help choose the best mortgage that meets your needs.

You don’t have to be a mortgage expert, and nobody expects you to be — that’s why you have a lender But, it does help to know mortgages a little bit to keep the conversation in your favor.

Here are three things to think through while you’re buying a house.

1. What are mortgage rates doing today?

All day, every day, mortgage rates change.

Yesterday’s mortgage rates are different from today’s mortgage rates, which are different from tomorrow’s.

Changing mortgage rates matter when you’re shopping for a home. When you own a home, mortgage rates become a key part of your monthly payment for your house.

Mortgage rates affect how much home you can afford.

If today’s mortgage rates are down, the amount of home you can afford will rise. If today’s mortgage rates are up, the amount of home you can afford will fall.

The effect of mortgage rates can be substantial on your payment. A one percentage point increase in mortgage rates (+1.00%) lowers your maximum home purchase price 11 percent!

This is why home buyers should keep an eye on current mortgage rates, and work with a real estate agent who will do the same. You can watch our mortgage news show for timely, relevant updates, too.

Watching mortgage rates helps you make a better budgeting decision.

2. How long will I be in this house?

Ask yourself, “Will I be in this home for more than 5 years?” If not, consider an adjustable-rate mortgage (ARM).

ARMs are home loans which start at a very low rate. Then, after some number of years have passed — usually five — the interest rate on the loan is allowed to change.

Sometimes, interest rates move higher when they adjust. Other times, they move lower. If you’re moving, though, it won’t matter. You’re never exposed to the risk of getting a new rate. This can help you save money.

ARMs are excellent for home buyers who know they’ll move before their teaser rate expires.

Adjustable-rate mortgage rates can be as much as 100 basis points (1.00%) below fixed-rate mortgage rates.

Home buyers who use ARMs benefit from lower monthly payments, which stretches the listing price for homes they can be approved to go purchase.

What’s the best mortgage loan for your goals?

A mortgage is a loan that is used to buy real estate. There are multiple mortgage types.

The mortgage type you select for your home will affect how much home you can afford.

For example, if you are a military veteran or active duty serviceperson, you have access to a special mortgage program called the VA loan. VA loans offer below-market mortgage rates and reduced loan fees.

The USDA mortgage loan is a 100% mortgage program that might be a good fit. And, same for cons FHA mortgage loan, which requires a 3.5% down payment.

Getting a low mortgage rate stretches your maximum purchase price on a home.

Similarly, the less money you put toward a down payment, the larger your mortgage loan will be. Larger loan sizes yield larger monthly payments, so be aware of how your borrowing choices affect your payment.

This is where Down Payment Assistance programs come in handy.

Down Payment Assistance programs can be used for down payment money, for closing cost reimbursement, and for tax reductions. These each can affect your payment and home affordability.

When you’re buying a home, consider all of your mortgage choices and make sure to check free down payment assistance programs in your area.

Are you a first time home buyer?

Let us know if you’ve done this before - whether you’re a seasoned pro or buying for the first time. We’ll share the perfect information with you as you need it.

More than 25,000 home buyers have customized their content

Sign up to customize yours

Already have an account? Log In