How Do You Calculate How Much House You Can Afford?

9 Min Read
Updated March 7, 2024
Spanish colonial style home with dormers and red roof.
Written By Sam Hawrylack

When some people start looking to buy a house, they often consider factors such as size, location and proximity to schools. Given today’s economic climate, however, there’s a different question they should be asking themselves: “How much house can I afford?”

Mortgage Affordability Calculator

It’s critical to know how much money you have available to spend, because the amount you think you can afford may differ dramatically from the amount that mortgage lenders determine. Knowing ahead of time your potential monthly mortgage payment, and how it will affect your budget, is critical.

A good place to start is with the Quicken Loans mortgage affordability calculator, which can help you calculate your monthly debt. The calculator requires you to input elements like your annual income, monthly obligations, your credit rating and other variables. With this information, Quicken Loans can provide an estimated range for your monthly mortgage payments.

Being aware of your financial limitations means being realistic about how much you make, how much you have saved, and your current and potential future debts. You should also consider unexpected expenses and how your life might change in the future.

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How Much Mortgage Can You Afford?

There are several factors you need to consider when determining how much you can afford for your monthly mortgage, including your monthly income, debt, credit score and more.

Monthly Income

If you’re applying for a mortgage, gross income — also known as “gross pay” — is key to knowing how much you can afford. Mortgage lenders and property owners look at gross income as an indicator of your financial reliability, and lenders will want to know how much of your income will go toward monthly payments.

To define the term, gross income is the total amount of earnings a person, or business, makes before subtracting taxes and other expenses. For businesses, gross income may be called “gross margin” or “gross profit.”

Gross income is also the starting point when you filing your tax returns, and it determines your federal income tax bracket.

Existing Debt

When it comes time to get a mortgage, your existing debt is a one of the key factors in determining how much you can afford. Here’s why: it affects how much you can afford when determining a ceiling for a home price. Categories of debt include:

  • Credit card debt
  • Alimony
  • Student loans
  • Car loans
  • Personal loans
  • Child support payments
  • Home equity lines of credit

Lenders take your amount of existing debt into account when they determine how much they can lend you.

Credit Score

Your credit score, which is a number that ranges from 300 – 850, shows how well you handle debt and how likely you are to repay a loan on time. It’s simple: the higher your score, the easier it’ll be for you to qualify for a lower interest rate on a mortgage.

You can think of a credit score and your credit history as part of a financial wellness indicator, which is relevant when lenders look at the credit score you need to buy a house. Credit scores are different from credit reports — and it’s easy to confuse the two when they have such similar names. Credit reports are statements come from three credit bureaus: ExperianTM, Equifax and TransUnion. They contain information about your credit activity, including how well you’ve paid off your debts in the past.

Emergency Fund

Lenders often want to see that potential buyers have cash reserves — or an emergency fund — on-hand. According to a 2021 Bankrate survey, less than 40% of Americans could pay an unexpected $1,000 charge with money they have saved, and more than one-third said they’d pay this expense by borrowing.

An emergency fund can keep you from falling into a difficult financial situation, can help free up cash for a higher down payment and can indicate to lenders that you’re ready to withstand economic woes. Here are some other benefits having an emergency fund can offer:

  • Money for car repairs, home repairs and medical bills
  • No high interest charges on your credit card
  • No need to take out a personal loan
  • No risk to relationships by borrowing from family and friends
  • No struggle with debt
  • Peace of mind and better mental health
Home Affordability Calculator

Home Affordability Calculator

Calculate the home price you can afford using your income and the amount of debt you have.

Tips For Budgeting How Much You Can Afford for a House

It’s important to review your budget and track your monthly expenses to ensure you can afford a mortgage payment. You might even try taking out the equivalent of a potential mortgage for a few months to see how it works with your budget.

Determine Your Debt-To-Income Ratio (DTI)

Lenders typically calculate an applicant’s debt-to-income ratio (DTI) when they determine how much homebuyers can afford. DTI is a ratio that compares the monthly payments you can make with existing debts and your gross monthly income before taxes.

Lenders incorporate DTI figures because they want to make sure borrowers can comfortably afford their monthly payments once they get a new mortgage. DTI helps them determine an affordable payment that won’t create financial troubles in the future.

Follow the 28/36 Rule

The 28/36 rule is a shorthand way to determine how much house you can afford. The rule essentially holds that you shouldn’t spend more than 28% of your pretax income on expenses like a mortgage and other costs (such as taxes, homeowners insurance and private mortgage insurance, and more). And when you factor in other expenses such as a car loan, credit card payments and child support, your costs shouldn’t exceed 36% of your pretax income.

For example, say your household brings in $5,000 every month in gross income. Multiply your monthly gross income by .28 to get a rough estimate of how much you can afford to spend a month on your mortgage. In this situation, you shouldn’t spend more than $1,400 on your monthly mortgage payment. Then, calculating your other costs shouldn’t take you above 36% of your pretax income — or $1,800 total, to use our example.

What Mortgage Can You Afford?

There are several different types of mortgages that can help you find the best home financing option. Here are the different types of mortgages so you can understand the benefits and differences of each type and decide what’s right for you.

Conventional Loan

A conventional loan is a mortgage not backed by a government agency that is provided by private lenders. It can be conforming (meaning it meets certain guidelines and loan limits), or it can be nonconforming (meaning it doesn’t meet certain guidelines or limits).

Government-insured mortgages help protect the lender if a borrower defaults on their loan. Since conventional loans don’t offer this same level of protection, their requirements often include a higher credit score, lower debt-to-income ratio (DTI) and, sometimes, a higher down payment.

The amount of down payment required fluctuates, but in some cases, you may be able to put down as little as 3% as an initial payment. However, putting down less than 20% means you’ll have to pay for private mortgage insurance (PMI) — or mortgage insurance that the lender requires in the event that you fall behind on your mortgage payments.

FHA Loan

An FHA loan is a home loan regulated and insured by the Federal Housing Administration (FHA), which is part of the U.S. Department of Housing and Urban Development. The loan doesn’t come directly from the FHA but from a private, FHA-approved lender.

This program helps lower- and moderate-wage earners achieve homeownership, as FHA loans have lower credit requirements and income limits compared to conventional loans. However, FHA mortgage insurance requires you to pay two mortgage insurance premiums:

  • Upfront mortgage insurance premium (UFMIP): This element requires an upfront mortgage insurance payment of 1.75% of the loan amount. You pay this when you get the loan, but you can also roll it into the financed loan amount.
  • Annual mortgage insurance payments (MIP): This requirement necessitates annual mortgage insurance premiums, which are between 0.15% – .075% but depend on the loan term, the loan amount and the loan-to-value ratio (LTV). The LTV measures the appraised value of a home versus the loan amount you seek to borrow. This premium amount is divided by 12, and you pay it monthly.

VA Loan

VA loans are home mortgage loans backed by the Department of Veterans Affairs (VA). They are designed to help those who have served — and are serving — our country to afford quality housing.

Since the VA does not offer mortgage products directly, you will still go through a mortgage lender to obtain a VA loan. However, the VA determines who can receive a VA loan and which mortgage lenders can issue them. VA loans also do not require a down payment, and nearly 90% of VA loan borrowers put no money down. VA loans also have no credit score and DTI requirements, but your lender may have their own requirement based on your financial situation. If you default on your loan, the VA will pay back a portion of the loan to the lender.


A USDA loan (also known as a Rural Development loan) is a type of government-backed mortgage that is guaranteed by the U.S. Department of Agriculture (USDA) to support rural housing markets. Because they don’t require a down payment, USDA loans provide an affordable borrowing option for home buyers looking to buy a home or refinance in a rural area.

By design, USDA loans are more accessible than other loan options, and the centerpiece benefit of this loan option is the ability to buy a home with a 0% down payment. There are also upfront and annual guarantee fees (split into monthly payments), but these are lower than FHA mortgage insurance premiums.

The Bottom Line: Home Affordability and Your Budget

As previously noted, owning a home comes with many potential rewards — and many risks, as well. Purchasing a home is often the largest financial step people take in their lives, so it is crucial that potential homeowners do their due diligence and determine how much house they can actually afford.

If you do your homework and find you’re ready for homeownership, contact us and apply for a mortgage today!

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