As a general rule, you can afford a home priced 2.5-3x your gross annual income. However, the exact amount depends on your debt-to-income ratio, credit score, down payment, and current interest rates.
The 28/36 rule states that housing costs should not exceed 28% of gross monthly income, and total debt payments (including mortgage) should not exceed 36%. Lenders use this to determine loan eligibility.
A larger down payment reduces your loan amount, monthly payment, and may eliminate PMI (Private Mortgage Insurance). A 20% down payment is ideal to avoid PMI costs.
Beyond mortgage principal and interest, affordability includes property taxes, homeowners insurance, HOA fees, PMI (if applicable), and maintenance costs (typically 1-3% of home value annually).
Use the calculator for initial estimates, then get pre-approved by a lender. Pre-approval gives you a concrete budget based on your actual credit, income, and debt profile.
Even small rate changes significantly impact affordability. A 1% rate increase can reduce your purchasing power by 10-15%. Lock in the best rate you can qualify for.
The amount a bank approves you for and the amount you should actually spend are two different numbers. The 28/36 rule kept me honest โ check yours with my home affordability calculator before you start house hunting.