How Much House Can You Afford?
The #1 mistake first-time buyers make is confusing "how much the bank will lend" with "how much you can actually afford." Lenders care about not defaulting — you care about not being house-poor. These are not the same thing.
Use our free mortgage calculator to run the numbers for your situation.
The 28/36 Rule
The industry standard for affordability:
- 28% rule: Your monthly mortgage payment (principal + interest + taxes + insurance) should not exceed 28% of your gross monthly income.
- 36% rule: Your total monthly debt payments (mortgage + car loans + student loans + credit cards) should not exceed 36% of gross income.
Example: Household income of $90,000/year = $7,500/month gross. Maximum mortgage payment: $7,500 × 28% = $2,100/month. Maximum total debt: $7,500 × 36% = $2,700/month.
What Drives Your Monthly Payment?
Four factors determine your monthly mortgage payment (P&I — principal and interest):
- Loan amount — purchase price minus down payment
- Interest rate — even 0.5% difference costs thousands over 30 years
- Loan term — 15-year vs 30-year dramatically changes payment and total cost
- Loan type — fixed-rate vs ARM (Adjustable Rate Mortgage)
15-Year vs 30-Year Mortgage: Which Is Better?
| | 30-Year Fixed | 15-Year Fixed | |---|---|---| | Monthly payment | Lower (~40% less) | Higher | | Total interest paid | Much higher | Much less (~half) | | Equity building | Slow | Fast | | Flexibility | Better (lower required payment) | Less flexible | | Best for | Cash-flow sensitive buyers | Those prioritizing low total cost |
Example ($350,000 loan at 6.5%):
- 30-year: $2,212/month, $446,320 total interest
- 15-year: $3,051/month, $199,180 total interest — you save $247,140
Hidden Costs of Homeownership
Your mortgage payment is just part of the true cost. Budget for these too:
- Property taxes: Typically 0.5–2.5% of home value per year depending on location
- Homeowner's insurance: $1,200–$2,500/year on average
- PMI (Private Mortgage Insurance): Required if down payment is under 20%. Costs 0.5–1.5% of loan amount per year. On a $300,000 loan that is $125–$375/month extra.
- HOA fees: $100–$500+/month in many communities
- Maintenance: Budget 1–2% of home value per year
- Utilities: Mortgage calculators never include this — add $200–$600/month
How Much Down Payment Do You Need?
- 3%: Conventional loan minimum (first-time buyers)
- 3.5%: FHA loan minimum
- 10%: Reduces PMI cost significantly
- 20%: Eliminates PMI entirely — the standard recommendation
Use the Calculator
Ready to run your own numbers? Our free mortgage calculator shows your monthly payment, total interest, and a full 30-year amortization schedule. Try different down payments and interest rates to find the right balance for your budget.
FAQ
What credit score do I need for a mortgage?
Conventional loans typically require 620+. FHA loans accept 580+ (with 3.5% down) or 500+ (with 10% down). Better scores get better rates — a 760+ score can save you 0.5–1% in interest.
Should I buy points to lower my rate?
One point = 1% of loan amount and typically lowers the rate by 0.25%. Calculate the break-even point: if points cost $3,000 and save $50/month, break-even is 60 months (5 years). If you plan to stay longer, buying points makes sense.