How Much House Can I Afford?

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Buying a home - How much can I afford

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Buying a home is an exciting and emotional process; after all, that’ll be the place you call home. Most people start by asking themselves the question, How Much House Can I Afford?

Your Down Payment + Mortgage You Can Borrow = Total House Price You Can Afford

Once you get the down payment part figured out, the question becomes, how much mortgage can I afford?

To learn everything about ‘How Much House Can I Afford,’ continue on. We will cover the following:

  1. Find out how much down payment you need
  2. Use a home affordability calculator
  3. Follow the 28/36 rules of thumb
  4. Assessing the 30% rule
  5. The power of your credit score over how much house you can afford
  6. Account for increases in housing expenses
  7. Get mortgage pre-qualified
  8. Determine a mortgage payment you can afford

1. Find Out How Much Down Payment You Need

According to the National Association of Realtors, the median down payment by first-time homebuyers in 2020 was 6% of the home’s price. Some buyers put down less, and some put down more, but the middle down payment is about 6%.

So, if you take the average price of a home in your city –  for instance, let’s say that number is $600,000; at 6%, you’d need $36,000 as a down payment.

Here is how much it’d be using different percentages:

  • $600,000 * 5% = $30,000
  • $600,000 * 6% = $36,000
  • $600,000 * 10% = $60,000
  • $600,000 * 15% = $90,000
  • $600,000 * 20% = $120,000
Find Out How Much Down Payment You Need
Median Down Payment

You might qualify for local and federal assistance to cover a portion of the down payment, so check with your local government to confirm whether or not you are eligible.

The bottom line is, you don’t need to have a huge 20% down payment to become a homeowner. What you need is to comfortably be able to afford the mortgage payment.

However, for those who have the cash, a 20% down payment means you won’t have to pay for mortgage insurance (PMI).

PMI? What’s that?

You guessed it, that’s another fee, and it will cost you anywhere from 0.5% to 2% of the home’s price, depending on the size of your down payment. Mortgage insurance (PMI) protects the lender, not you, but it is mandatory if you’re applying for a mortgage loan and have a down payment that’s lower than 20%.

Three Ways Maximize Your Down Payment

The higher your down payment, the lower the mortgage payments are going to be. This makes things more manageable from a budget standpoint.

Here are three ways you can use to maximize the size of your down payment:

  • Gifts from relatives. Home prices have increased substantially in recent years. A relative such as a parent can gift you the entire or a portion of the down payment; they’d then sign a letter stating the amount is a gift and not a loan.
  • Save windfall money such as bonuses and tax refunds. Think of this money as the ‘buying a home’ fund; this will prevent you from spending it.
  • Set up automatic transfers. Ask your bank to set up an automatic transfer to a saving account so that when you get paid, a portion of your salary gets automatically transferred to a saving account.

Out of sight, out of mind – Once you get used to it, you won’t even think of that money while your savings keep growing.

Even if you haven’t decided to buy a home yet, start saving today. Click on the below link to find out creative ways to save for a down payment.

 Read More: What’s the Required Down Payment on a House?

2. Use a House Affordability Calculator

One of the best ways to answer the question, how much house can I afford, is using a home affordability calculator. This way, you will get a good idea of what you can afford and begin to evaluate the type of house you want to consider.

Read More: House Affordability Calculator

Once you access the calculator, plug in your numbers to determine how much house you can afford. Go ahead and type different scenarios until you can simulate the type of mortgage payment you’re happy with. 

Keep in mind that how much you can afford also depends on your spending habits. For instance, if you like eating out every day, that’s going to affect your budget.

Be conservative and make sure the mortgage payment is an amount that you can comfortably afford.

Once you have found out the amount of mortgage you’re happy with, don’t stop there. To make the test more real, experiment for a few months by removing from your spending the extra amount and set it aside to a different account.

Can you live without it?

To illustrate, consider the following: You are currently paying $1,500 in rent, but you want to buy a house that’ll cost you a mortgage payment of $2,000, plus another $500 in utilities and property taxes. So you’ll have an increase in monthly costs of $1,000.

Can you easily handle the increase in housing costs?   

Use your own numbers, and if you can easily do this, you’re one step closer to becoming a homeowner.

Know your numbers

Before buying a home, you must get familiar with what you spend and how you spend. Here it helps to put together a budget.

The purpose of a personal budget is to identify how much money is coming in and how much money is going out; this allows you to start planning your spending and save more money every month.

If you haven’t already prepared a budget, download our budget worksheet to get started.

3. Follow the 28/36 House Affordability Rule

Lenders use affordability rules to assess mortgage applications. The 28/36 states that a home buyer should spend no more than 28% of their gross income on housing expenses and no more than 36% on all debt-related expenses (including the mortgage payment).

Housing expenses should not exceed 28% of your monthly gross income.

Housing expenses include the mortgage payment, hydro, gas, property taxes, home insurance, and if you’re buying a condo, 50% of the condo fees. The total should not exceed 28% of your gross monthly income.

For example, if you earn $45,000 per year and your spouse earns another $45,000, your household income is $90,000 per year. 

Household income is $90,000 / 12 = $7,500 monthly income * 28% = $2,100 total housing expenses you can afford.

Total debt payments should not exceed 36% of your monthly gross income.

The amount of debt you have influences how much money is left to pay the mortgage; so, the second rule of thumb includes all your monthly debt payments, such as the mortgage payment and any other payments made towards paying off debt.

Total monthly debt payments (including the mortgage payment) should not exceed 36% of your gross household income.  What do I mean by this?

Similar to the earlier example, if you and your spouse have a combined household income of $90,000 per year or $7,500 per month, your monthly debt payments cannot be higher than $2,800 per month ($7,500 * 36%)

Your lender may choose to go with higher rates than 28/36, but they won’t go lower.

Some lenders allow for rates as high as 35/43, but keep in mind that the amount of mortgage you can get approved for is not necessarily the amount of mortgage you should borrow. Be sure to leave some room for miscellaneous and emergency expenses.

4. Assessing the 30% rule

Experts say the maximum a family should spend in housing is 30% of their gross income.

Why 30%? Because there are other expenses that you’ll need to pay, and it’s what the USA congress established in 1981 as rent limits for affordable housing recipients.

Because the 30% rule is a rule of thumb for how much a household can spend on housing while having enough money remaining to pay for non-discretionary things, it has made its way into the owner-occupied housing market.

As a result, lenders typically assume that 30% of your gross income can be used to repay the mortgage loan. Then they factor in your debts, assets, and spending to assess how much house you can afford.

House affordability means being able to afford housing costs without compromising on the ability to pay for other basic needs, such as food, clothing, and education.

When housing costs are higher than 30% of income, families start compromising on essential needs and things like education, which often leads to getting further in debt.

Here are a few scenarios assuming different levels of income:

Scenario 1: $75,000 income

$75,000/12 = $6,250 * 30% = $1,875 per month. At 3.5% APR it works out to $417,000 loan amount.

Scenario 2: $100,000 income

$100,000/12 = $8,333 * 30% = $2,500 per month. At 3.5% APR it works out to $556,000 loan amount.

Scenario 3: $120,000 income

$120,000/12 = $10,000 * 30% = $3,000 per month. At 3.5% APR it works out to $668,000 loan amount.

5. The Power of Your Credit Score Over How Much House You Can Afford.

Take note of what your credit score is before applying for a mortgage. This way, you stand a better chance of negotiating a better mortgage rate.

Some companies may allow you to obtain your credit report for free, but they’ll then use your personal information to profit and may share it with other companies. For just about $25, you can get a copy of your credit report from any of the credit bureaus (Equifax, TransUnion, or Experian).

Remember that your credit score can have a big impact on the interest rate lenders will offer you; thus, it affects how much mortgage you can afford.

The higher the interest rate, the less amount of mortgage you will be able to afford.

The Power of Your Credit Score Over How Much House You Can Afford.

Here is a snapshot of what credit scores mean:

  • 720+

You should be able to get the best mortgage rates in the market

  • 690 – 719

You can still qualify for a mortgage, but you will need to negotiate to get a good rate.

  • 630 – 689

You might qualify, but your interest rate will be higher

  • 300 – 629

If your credit score is lower than 600, you won’t qualify for a mortgage 

Your credit score affects your buying power

The lower your credit score is, the higher the interest rate is going to be. A higher interest rate will affect the mortgage amount you can borrow. It’s possible to buy a home with damaged credit, but it’ll be more expensive.


Credit scores are an indication of risk; thus, lenders use them to determine the creditworthiness of a borrower. This means, if you’re planning to buy a house, you should start improving your credit score today. 

Here are a few pointers that will help you get on the right track with your credit:

  • Pay your bills on time. This will improve your payment history.
  • Keep account balances below 30%. When you owe more, lenders believe you’re getting maxed out.
  • Do not close accounts. Closing accounts will reduce your credit score, especially if you’re built a good payment history on that account.

Read More: Credit Repair

How to get the best interest rate

The secret to getting the best interest rate is to shop around. However, to shop around, you’ll need to make sure you have a good credit score to make your application attractive to potential lenders.

It’s that simple; lenders offer the lowest interest rates to borrowers with the highest credit scores. So, improving your credit score will not only get you a better rate, but it also means you’ll be able to afford a bigger house or mortgage.

6. Account for Increases in Housing Expenses

Knowing how much house you can afford is more than simply knowing your mortgage payment amount. You have to factor in other homeownership costs.

Here are some extra costs of homeownership you should account for:

  • Property tax
  • Increased utilities
  • Home repairs
  • Appliances (AC, HVAC, stove, dishwasher, washer, and dryer)

Property taxes

Knowing how much you’ll pay on property taxes is just as important as knowing how much the monthly mortgage payment will be. Your real estate agent can assist you in estimating or finding out an estimated number.

An average property pays about $3,000 in annual property taxes.

Most cities have a website where you can type a value and click calculate, and voila, you have an estimated property tax amount.

Step 1: Google “property tax calculator (your city)”

Step 2: Click on the link and type the estimated price of the property.

Step 3: That’s it

Property Tax Calculation

Divide the annual property tax amount by 12 to calculate how much property taxes you’ll be paying per month. 

Buying a home is fun, but it can also become a source of stress and anxiety for buyers who are not prepared. Our Home-Buyer’s Guide will streamline the process! It’ll guide you through all the important steps so you can get the home you want.

7. Get Mortgage Pre-Qualified

An effective way to find out how much house you can afford is to go directly to a lender or a mortgage broker to get pre-qualified for a mortgage.

The process is simple you will disclose your income, debts, and down payment; those are the biggest factors that determine how much house you can afford.

The lender will then assess your finances to determine what type of mortgage you can qualify for. You can then use this number as a benchmark; remember, just because you qualify for a certain amount, it does not mean you should buy a house for that much.

Expect to receive the following information:

  1. The amount of mortgage you qualify for

  2. An estimated interest rate

  3. Other loan costs such as lawyer fees, appraisal fees, and more.

Can’t afford a home (yet)?

Now is the right time to start planning your home buying journey. Your next step is to make a plan that shifts the odds in your favor.

Get Started!
Prepare your budget plan with Our FREE Personal Monthly Budget Worksheet. Simply click on the button below to get your budget planning worksheet delivered right to your inbox!

Get Mortgage Pre-Qualified

8. Determine a Mortgage Payment You Can Afford

One of the most important aspects of house affordability is the mortgage payment. Make sure to choose a realistic mortgage payment amount where you don’t have to wonder from month-to-month, can I afford it.

Just because you qualify for a larger mortgage, it does not mean you should go with the maximum number. The reason is, there might be surprise repairs you never thought about, such as the roof needs replacing or an appliance that no longer works.

Being able to afford a house means having more money left after paying all your monthly costs and all monthly housing expenses. This is why there are rules of thumb that recommend spending no more than 28% on housing costs.

Reducing discretionary spending to improve how much house you can afford.

Another aspect that drives house affordability is your lifestyle. In other words, if the amount you can now afford is lower than what you want to buy/borrow, you may be able to fill the gap by reducing discretionary spending such as vacations, dining out, expensive hobbies, and subscriptions.

Buying a house is a significant commitment, so it requires you to readjust and monitor your spending to ensure you’re well prepared to navigate the risks and rewards homeownership brings.

Mind the interest rate of your mortgage

Your mortgage interest rates will affect how much house you can afford.  The lower your interest rate is, the lower your monthly payment will be. That’s why it’s important to shop around for the best rate.

It’s not just about the rate, though, especially if those rates are subject to change. What’s important is getting the right mortgage.

Read More: 21 Types of Mortgage Loans for Homebuyers

Here are the guidelines I recommend, especially if you’re a first-time homebuyer:

  • Fixed-rate mortgage. This option allows you to know exactly how much your mortgage payment will be now and well into the future. You’re in control. With a variable rate mortgage, the rate can increase, which means your mortgage payment will go up.
  • Housing costs (including the mortgage payment) should be no more than 28% of your monthly income. Remember, 28% is a rule of thumb. That’s because there are other expenses you will continue paying. Housing costs capped at 28% of your income allow you to remain flexible to be able to afford the things you care about, such as kids’ college or keep building your retirement fund.
  • 25-year term. The shorter the term, the fastest you’ll be able to be mortgage-free. However, with home prices where they are 25 years is a realistic yet achievable time to repay the mortgage.

Ready for the next steps?

If you want to know what to expect every step of the way, you should check out our New Home buyers Online course. By taking our homebuyer course, you’ll be able to navigate the home buying process with confidence.

Click Here: Home Buyer’s Online Course.

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