Asking "how much house can I afford?" is one of the most important steps before you start shopping. The answer is not just a multiple of your salary. It depends on your income, your monthly debts, your down payment, your interest rate, property taxes, homeowners insurance and your own comfort level.
The short answer: lenders compare your monthly income to your monthly debts (your debt-to-income ratio), and you should also build a personal budget that includes taxes, insurance and maintenance. Use our mortgage calculator to estimate a payment, then decide what feels comfortable.
Start with your gross monthly income
Lenders usually look at your gross monthly income, which is your income before taxes. Add up:
- Your salary or wages before taxes
- Consistent bonuses, commissions or overtime (with a history)
- Self-employment income (usually averaged over time)
- Other qualifying income, such as rental or retirement income
If your income varies, lenders typically look at a longer history to understand what is stable and likely to continue.
List your monthly debts
Your debt-to-income ratio compares your monthly debt payments to your gross monthly income. Common debts include:
- Car loans
- Student loans
- Credit card minimum payments
- Personal loans
- Child support or alimony
A simple illustrative example
These numbers are for illustration only and do not represent a rate quote, a loan offer or a guarantee of any kind.
Suppose your gross monthly income is $6,000 and your monthly debts total $400.
- A common guideline suggests keeping your total housing payment plus debts under a percentage of your gross income.
- Your lender applies its own guidelines, which can vary by loan program and your full file.
- Your actual maximum depends on your credit, down payment, the property and current rates.
The point is to see how income and debts fit together before you shop.
Do not forget the full cost of owning a home
A mortgage payment is usually more than principal and interest. It often includes:
- Principal and interest: the loan payment itself
- Property taxes: based on your home's assessed value and local rates
- Homeowners insurance: protection for your home and belongings
- Mortgage insurance: may apply depending on your loan program and down payment
- HOA fees: if your community has a homeowners association
Use our mortgage calculator to estimate a monthly principal and interest payment at different home prices and down payments. Remember that your real payment may also include taxes, insurance and mortgage insurance.
Down payment and cash to close
A larger down payment lowers your loan amount and your monthly payment, but it is not the only cost at closing. You also need money for:
- Closing costs
- Prepaid taxes and insurance
- Appraisal and other fees
- Cash reserves, which are savings left after closing
Some programs allow lower down payments for eligible buyers. Learn more on our first-time home buyer page.
Build your own comfort budget
What a lender approves and what feels comfortable are not always the same. Think about:
- Your other monthly expenses and lifestyle
- Savings goals and emergency fund
- Maintenance and repairs on a home
- Future income changes
A good rule is to estimate the payment, then live with that payment for a few months by setting the difference aside in savings.
Frequently asked questions
What is the rule for how much house I can afford? There is no single rule. Lenders use debt-to-income guidelines, and you should also build a personal budget that includes taxes, insurance and maintenance.
Does my credit score affect how much I can borrow? Your credit can affect the loan programs available to you and your terms, which can affect your monthly payment and how much you can comfortably borrow.
Can I count bonus or commission income? Often, yes, but lenders usually look at a longer history of variable income to confirm it is stable and likely to continue.
Should I use the lender's maximum or my own budget? Use both. The lender's maximum tells you what may be possible; your own budget tells you what is comfortable.
Ready to find your number?
When you are ready, get a free quote or get pre-approved with Alex.
You can also call Alex Al-Ammar at (313) 992-9898 or email Alex@vestalending.com.
This article is for general information only. It is not legal, tax or financial advice. Loan programs, guidelines and eligibility depend on your credit, income, property and lender requirements. Figures are illustrative only. Speak with a qualified professional about your individual situation.
