How we calculate how much house you can afford

Our home affordability calculator estimates how much home you can afford by considering where you live, what your annual income is, how much you have saved for a down payment, and what your monthly debts or spending looks like. This estimate will give you a brief overview of what you can afford when considering buying a house.

Go one step further by applying some of the advanced filters for a more precise picture of what you can afford for a future residence by including the costs associated with homeownership. The advanced options include things like monthly homeowners insurance, mortgage interest rate, private mortgage insurance (when applicable), loan type, and the property tax rate. The more variables you enter into the home affordability calculator will result in a closer approximation of how much house you can afford.

How to calculate annual income for your household

In order to determine how much mortgage you can afford to pay each month, start by looking at how much you earn each year before taxes. Consider all your earnings for the year, which could include salary, wages, tips, commission, etc.

If you have a spouse or a partner that has an income which will also contribute to the monthly mortgage, make sure to include that as well into your gross annual income for your household. Then take your annual income and divide by 12 to determine your monthly income.

Follow the 28/36 debt-to-income rule

This rule asserts that you do not want to spend more than 28% of your monthly income on housing-related expenses and not spend more than 36% of your income against all debts, including your new mortgage. Keeping within these parameters will ensure you enough money left over for food, gas, vacations, and saving for retirement.

Example: Let’s say you and your spouse have a combined monthly income of $5,000. Applying the 28/36 rule, you wouldn’t want to spend more than:

$1,400 on house related expenses ($5,000 x .28)
$1,800 on total debt ($5,000 x .36)

How much of a down payment do you need for a house?

A 20% down payment is standard, if you can afford it. Though some mortgage loans may only require as little as 3.5 percent down, or none at all, a larger down payment will have a greater impact on your monthly mortgage payment.

Your down payment effectively reduces the total amount of your home loan, which increases your home affordability estimate, and at the same time, decreases your mortgage payment each month. For example, below is a chart showing how a certain level of down payments, based on a percentage of the sale price, directly impacts your monthly mortgage payment (based on a 30-year mortgage at a fixed rate of 4.241% APR):