How much house can I afford based on my income?

The 28/36 rule is the industry standard: your housing costs should not exceed 28% of gross monthly income (front-end ratio), and total debt payments should not exceed 36% (back-end ratio). For example, with $75,000 annual income ($6,250/month), you can afford up to $1,750/month in housing costs. If you have $500 in other debts, you still qualify at $1,750/month. If you have $1,000 in other debts, you're limited to $1,250/month housing (constrained by 36% back-end ratio). According to the Consumer Financial Protection Bureau , lenders use these ratios to assess mortgage qualification.

What is the 28/36 rule?

The 28/36 rule is a lending guideline: 28% front-end ratio means housing expenses (mortgage, taxes, insurance, HOA) should not exceed 28% of gross income. 36% back-end ratio means total debt payments (housing plus car loans, student loans, credit cards) should not exceed 36%. Example: $6,000/month income allows $1,680 max housing (28%) and $2,160 max total debt (36%). Most conventional loans require 28/36 compliance, though FHA allows up to 31/43 and some programs accept higher ratios with strong credit. The Fannie Mae Eligibility Matrix details DTI requirements by loan type.

What factors affect home affordability?

Key factors include: (1) Annual gross income - higher income means higher home price ($60K income affords ~$210K home, $100K affords ~$350K). (2) Existing monthly debts - $500/month debts reduces max price by $60K-80K. (3) Down payment - 20% avoids PMI and increases affordability. (4) Interest rate - 1% increase reduces buying power 10-15%. (5) Property taxes - vary 0.5-2.5% by location. (6) Credit score - determines rate qualification (740+ gets best rates). Each factor significantly impacts your maximum affordable home price and monthly payment.

How much down payment do I need?

Down payment requirements vary by loan type: FHA loans require 3.5% minimum (580+ credit) or 10% (500-579 credit). Conventional loans require 3-5% for first-time buyers, 5-20% for repeat buyers. VA loans (veterans) and USDA loans (rural areas) require 0% down. However, 20% down avoids PMI (saves $100-200/month on $300K home), secures better rates (0.25-0.5% lower), and strengthens your offer. The HUD Homebuying Guide provides comprehensive down payment resources and assistance programs.

What is included in monthly housing costs?

Monthly housing costs (PITI + HOA + PMI) include: Principal and Interest (pays down loan and cost of borrowing), Property Taxes (0.5-2.5% annually, varies by location - TX 2%, CA 1%, NJ 2.5%), Homeowners Insurance ($800-2,000/year, higher in disaster zones), HOA fees ($100-500/month if applicable), and PMI ($125-250/month if under 20% down). Example: $300K home with $1,896 P&I + $375 taxes + $125 insurance + $150 HOA + $150 PMI = $2,696/month total. Many first-time buyers only budget for P&I and are surprised by the full payment.

How does debt-to-income ratio affect approval?

DTI ratio is critical for mortgage approval. Front-end DTI under 28% and back-end under 36% provides easy approval, best rates, and multiple lender options. DTI 28-36/36-43% is acceptable but may require higher credit (700+), larger down payment (10-20%), and cash reserves. DTI over 43/50% usually results in denial for conventional loans (may qualify for FHA with strong compensating factors). To improve DTI: pay down debts (each $100/month paid off adds $15K-20K buying power), increase income, avoid new debt, or make larger down payment. Visit the CFPB DTI Guide for requirements.

How much cash do I need to buy a house?

Total cash needed includes: (1) Down payment - 3.5-20% of home price. (2) Closing costs - 2-5% of price (loan fees, appraisal, title insurance, escrow). (3) Cash reserves - 2-6 months housing payments required by lenders. (4) Moving costs - $1K-5K. (5) Immediate expenses - $2K-5K (repairs, furniture). Example: $300K home with 10% down needs $30K (down) + $10.5K (closing) + $7.5K (reserves) + $3.5K (moving) = $51.5K total. Budget 25-30% of home price in cash. The HUD Closing Costs Guide provides detailed breakdowns.

Can I afford a house with bad credit?

Yes, but with limitations. FHA loans accept 580+ credit (3.5% down) or 500-579 credit (10% down). However, lower credit means higher rates: 760+ credit gets 6.5%, 620 credit gets 7.5%+ (1% higher rate on $300K = $200/month more, $72K more over 30 years). Lower credit also requires higher PMI rates (3x more expensive) and larger down payments. Best strategy: improve credit 6-12 months before buying by paying down cards under 30% utilization, paying bills on time, and disputing errors. Even 50-point improvement saves $100-300/month. See the myFICO Improvement Guide for strategies.

Home Affordability Calculator - How Much House Can I Afford? | Free 2024

Understanding Home Affordability

Our home affordability calculator uses the industry-standard 28/36 rule to determine how much house you can afford. According to the Consumer Financial Protection Bureau (CFPB), understanding these ratios is crucial for responsible home buying.

💡 The 28/36 Rule

28% Front-End: Housing costs ≤ 28% of gross monthly income
36% Back-End: Total debt ≤ 36% of gross monthly income
Example: $75,000 income → $1,750/month max housing

Key Factors

Income: Foundation of affordability calculation
Debts: Reduces housing budget through back-end DTI
Down Payment: 20% avoids PMI and secures better rates
Interest Rate: 1% increase reduces buying power 10-15%
Property Taxes: Vary 0.5-2.5% by location
Credit Score: Determines rate qualification

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