Home Affordability Calculator: How Much House Can I Afford?

by COUNTRY Financial

Whether you're in the market for your starter home or a sweet vacation spot, this calculator can help determine how much home you can afford. Keep reading once you've finished with the home-buying calculator; this page also includes an article with helpful tips, mortgage lending secrets and more.

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How do I calculate how much home I can afford?

How much mortgage you can afford is determined by comparing your income, expenses and creditworthiness. Here's a list of things to consider:

  • Your annual income
  • Your credit score
  • How much down payment you can afford
  • Debt
  • Monthly expenses
  • The estimated cost of home insurance and property taxes. (These vary by state, so be sure to familiarize yourself with local laws regarding each.)

Our calculator takes many of these into account for you, with the exception of carried debt and credit score.

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What is the 28/36 rule?

The 28/36 rule is an old financial adage. It says you shouldn't spend more than 28% of your monthly income on housing costs, nor more than 36% on debt. This affordability rule-of-thumb helps you quickly understand what you can afford, and it's held true for years.

Let's say your gross monthly income is $5,000:

  • Monthly housing cost you can afford: $1,400 (28% of $5,000)
  • Total monthly debt payments: No more than $1,800 (36% of $5,000)

If you're looking at a house that costs more than $1,400 per month, or you're paying more than $1,800 per month on debt payments, you're outside the 28/36 rule. You should either look for a less expensive home or pay off more debt before buying a home (or both).

If you're within the 28/36 rule, congratulations! You can afford that house. The rest of your gross monthly income should be used on basic living expenses, entertainment, etc.

Can I afford a house with an FHA loan?

Federal Housing Agency (FHA) loans are designed to help people with credit scores over 500 buy a home for less money down. First-time home buyers are a perfect fit for this type of loan.

Here are some requirements for an FHA loan:

  • Credit score above 500
    • For credit scores above 580, your down payment could be as low as 3.5% of the home's price. For scores of 500-579, you'll pay 10% down.
  • Debt-to-income ratio no higher than 43%
  • Steady income 
  • The home must be your primary residence
  • The home must meet FHA standards for safety and security

If you're serious about an FHA loan, start by researching FHA regulations in your area; many states will not grant FHA loans for homes beyond a certain price threshold. Then, find a lender approved by the FHA and get pre-qualified.

Should I buy a home?

When you're looking into buying a home, take everything you can think of into consideration; your credit, debt, expenses that come with a home, etc. Remember that renting and homeownership are very different; when your house needs maintenance, for example, there's no maintenance team—the cost of repairs are on you.

If you’re ready to buy a home, talk to a realtor and mortgage lender today—they can help you determine how much you can afford and answer any questions.

 

Updated 12-18-24

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 Start a quote or call us at 866-COUNTRY (866-268-6879). Find out more about home insurance.

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Your insurance agent is there to help

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COUNTRY Financial® is a family of affiliated companies (collectively, COUNTRY) located in Bloomington, IL. Learn more about who we are.

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