# Home Affordability Calculator: How Much House Can You Afford?

Purchasing a home is a significant financial decision. Our Home Affordability Calculator guides you through the process. Step by step, it helps you assess your financial readiness to buy a home, taking into account your income, debts, down payment, property taxes, insurance, interest rates, and more.

Calculate the home you can afford and make an informed decision.

## How Much House Can I Afford?

Gross Annual Income
\$40000
\$0
\$200,000
Monthly Debt Payments
\$250
\$0
\$3000
Funds available for a down payment
\$0
\$0
\$100,000
Annual Property Taxes
%
Annual Property Insurance
%
Loan Term
years
Front End Ratio
%
Back End Ratio
%
Home value you can afford
\$0.00
Monthly Payment
\$0.00
Loan Value
\$0.00
Down Payment
%

## How to Use the Home Affordability Calculator

Follow these steps to calculate how much home you can afford, and learn more about the financial process as you work through the steps.

### Step 1: Choose Your Gross Income

Use the slider to choose your gross income amount. Your gross income is what you earn before taxes, insurance, and other payroll deductions, such as 401(k) contributions.

### Step 2: Choose Your Monthly Debt Payments

Add up your credit card payments, student loans, and any other loans or debt payments you’re making on a monthly basis. Don’t include utilities, groceries, or living expenses.

### Step 3: Choose Your Down Payment Amount

Choose the amount you have on hand right now or the amount you plan on saving to use as a down payment. While a conventional loan may require a 20% down payment, there are many home loans that don’t require such a high down payment. Even so, in most cases, you’ll be required to provide a down payment ranging anywhere from 5% to 20%.

### Step 4: Input Your Estimated Property Taxes

You may not have any idea of what your property taxes will be, but this is something that you should know before you buy a house. If you have a house in mind, you can research the property taxes on your county assessor’s website, or you can do a quick search to see what property taxes are like in the area where you’ll be purchasing your home.

### Step 5: Input Your Annual Property Insurance

If you have the size and location of a home in mind, you can get a cost estimate from your insurance company. You can also do a quick internet search to get an idea of property insurance costs. The cost of your property insurance will determine your mortgage payment amount.

### Step 6: Input Your Interest Rate

Your interest rate when buying a home depends on factors like your credit score, loan type, down payment, loan term, and current market conditions. Lenders assess your risk profile to determine the rate, so maintaining good credit and shopping around for mortgage offers can help secure a favorable rate. You can do a quick internet search to get an idea of the current prevailing rate.

### Step 7: Input Your New Interest Rate

This is another number that can vary depending on many factors. If you have a number in mind or have been given a number by your refinance lender, enter that here. You can also get a general idea of what interest rates are like right now and enter that number.

### Step 8: Enter Your Loan Term

Will you be financing your home for 15 or 30 years? Those are the two most likely scenarios, but you can run the numbers both ways. Your payments will be lower if you choose 30 years, but your house will be paid off sooner if you choose 15 years.

### Step 9: Input Your Front-End Ratio

A good front-end ratio is typically considered to be 28% or lower. This means that your housing expenses, including mortgage principal, interest, property taxes, homeowners insurance, and HOA fees, should not exceed 28% of your gross monthly income.

You can plug 28% into the calculator to make it easy, or you can calculate your front-end ratio. To calculate your front-end ratio, tally your monthly housing expenses, including mortgage principal and interest, property taxes, homeowners insurance, and HOA fees. Then, calculate your gross monthly income from all sources. Divide your total housing expenses by your gross income and multiply the result by 100 to get the front-end ratio as a percentage.

### Step 10: Input Your Back-End Ratio

A back-end ratio of 50% is generally considered high and may be considered a potential financial risk by lenders. A more favorable back-end ratio is typically below 43% for most conventional mortgages. However, the ideal ratio can vary depending on the type of loan and the lender’s specific requirements.

Your back-end ratio, also known as the debt-to-income ratio (DTI), includes all your monthly debt obligations, not just housing expenses. This encompasses credit card payments, car loans, student loans, and other debts in addition to your housing costs. Lenders prefer lower DTIs because they indicate that you have a lower level of debt relative to your income, making it more likely that you can manage your financial responsibilities without undue strain.

### Step 11: Click “Calculate”

You’ll receive the value/cost of the home you can afford, your estimated monthly payment, the amount of your loan, and the percentage of your down payment.

## Which Banks Have the Best Savings Account Rates?

Savings rates are higher than they’ve been in over a decade, but if you’re using a traditional, big-name bank to save up for your down payment, you’re missing out on these rates.

Here are our top picks for those who want to earn the highest interest on their savings.

## What Are Closing Costs and How Are They Paid?

Closing costs are the fees and expenses associated with completing a real estate transaction, typically when you purchase a home or refinance an existing mortgage.

These costs are in addition to the purchase price or loan amount and cover various services and processes necessary to finalize the deal. Some common components of closing costs include:

### Lender Fees

These include loan origination fees, application fees, and points, which you may pay upfront or rolled into the loan.

### Title Services

Costs related to title searches, title insurance, and any required title endorsements to ensure the property’s clear ownership.

### Appraisal Fees

The cost of having a professional appraiser assess the property’s value.

### Inspection Fees

Expenses associated with home inspections, pest inspections, and other assessments.

### Property Taxes

Depending on the timing, you may need to prepay property taxes.

### Recording Fees

Charges for recording the deed and mortgage documents with the appropriate government office.

### Escrow and Prepaid Items

Funds set aside for property taxes, insurance, and mortgage interest that will be due shortly after closing.

### Attorney Fees

You’ll pay legal fees if an attorney is involved in the transaction.

### Credit Report Fees

The cost of obtaining your credit report for the lender’s review.

### Courier and Wire Transfer Fees

Charges for document delivery and funds transfer.

### Homeowner’s Insurance

If your down payment is less than 20%, you may have to pay for private mortgage insurance (PMI).

When you pay closing costs can vary by location and the specific terms of the real estate contract. Typically, they are paid at the closing, the final step in the homebuying process. During the closing, you will sign all the necessary documents, including those related to the loan and the property transfer. You will also pay the closing costs, either via a certified or cashier’s check or by wiring the funds.

It’s essential to review the loan estimate and closing disclosure provided by your lender to understand the breakdown of closing costs and be prepared for the amount you need to pay at closing. Additionally, you can sometimes negotiate with the seller to cover some or all of the closing costs, which can vary based on the terms of the real estate contract.

These FAQs address some of the key considerations when evaluating how much home you can afford.

However, it’s essential to consult with a financial advisor or mortgage specialist for personalized guidance tailored to your specific financial situation and location.

What factors determine how much home I can afford?

Home affordability depends on several factors, including your gross income, monthly debt payments, credit score, interest rates, down payment, and the type of mortgage you’re seeking. Lenders use these factors to calculate your debt-to-income ratio (DTI) and determine the amount of mortgage you can comfortably afford.

How much should I aim to spend on housing to ensure affordability?

A common guideline is that your housing expenses (mortgage, property taxes, insurance, and homeowners association fees) should not exceed 28% of your gross monthly income. However, it’s crucial to consider your overall financial situation, including other debts and living expenses, to ensure you can comfortably manage your housing costs.

Are there government programs or incentives to help with home affordability?

Yes, various government programs, such as FHA loans and VA loans, offer lower down payment requirements and more flexible qualification criteria. Additionally, first-time homebuyer programs and grants may be available at the state and local levels to assist with down payments and closing costs. Research these options to potentially increase your home affordability.