How much home can you afford? A plain walkthrough

The three ratios loan officers often use, and how to turn a monthly budget into a price range.

An East Asian woman and a white man, both in their late twenties, sit on the bare oak floor of a sunlit.

Most people start with a price and work backward. A more useful approach starts with the monthly payment you are comfortable with and works forward to a price.

Start with income and debts

Lenders often compare your housing payment with your gross monthly income, which is your income before tax divided by 12. As a rough guide, a housing payment up to 28% of gross monthly income is a comfortable range, up to 36% is a stretch, and up to 43% with your other monthly debts included is tight. These ratios are rules of thumb, not lending rules.

Housing payment means more than principal and interest. It also includes property taxes, homeowners insurance and any HOA dues, so include all of them when you test a budget.

Turn a payment into a price

Once you have a monthly budget, the interest rate and the term decide how large a loan that budget supports. The Affordability tab of the Payment Planner shows an illustrative price range for each band, with the monthly payment at the top of each range.

Savings matter too. A larger down payment reduces the loan and the payment, but keep cash aside for closing costs and for repairs after you move in.

Treat every figure as a starting point. Rates change, and a loan officer can run numbers for your situation. Figures here are illustrative and are not a rate quote, loan offer or commitment to lend.

Rates and figures are illustrative, not a rate quote, loan offer or commitment to lend. A pre-approval is not a commitment to lend.

Run your own numbers

See an illustrative monthly payment

Enter a price, a down payment and a term in the Payment Planner. Figures are illustrative only.

Open the calculators

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