How much mortgage you can afford
Most lenders use a simple formula: your monthly housing payment should stay around 28% of your gross monthly income, and your total debt load should not exceed 36%. That 28/36 rule gives a quick answer, but the real number depends on your rate, down payment, property taxes, insurance, and any HOA fees.
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To get a working budget, start with your annual gross income, multiply by 0.28, and divide by 12. Then subtract your current monthly debts — credit cards, student loans, car payments — to see how much payment headroom remains. A higher down payment lowers the monthly bill and may unlock a better rate, while a lower down payment keeps more cash in hand but usually adds private mortgage insurance.
Hidden costs that change the real number
The mortgage payment is only part of the equation. Homebuyers also need to cover closing costs, moving expenses, immediate repairs, and a reserve cushion for emergencies. Rule of thumb: set aside 2% to 5% of the purchase price for closing costs alone, and keep three to six months of housing payments in an emergency fund before you close.
What affects the rate you qualify for
Lenders weigh credit score, debt-to-income ratio, employment history, and the loan term you choose. A 15-year fixed loan usually carries a lower rate than a 30-year loan, but the monthly payment is higher. Adjustable-rate mortgages can start lower but carry payment risk later. Even a quarter-point difference in rate changes how much house fits the same budget over time.
A quick affordability checklist
- Know your gross monthly income and all recurring debts.
- Check your credit score and pull your reports for errors.
- Decide how much you can put down without draining reserves.
- Get preapproved so you have a real number, not a guess.
- Add property taxes, insurance, and HOA fees to the monthly payment.
- Keep a cash buffer for unexpected repairs and rate changes.