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How much house can I afford?

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You may not be able to afford a home that costs:
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$---,---
Affordable Risky Not Possible
Total Monthly Payment
$ -,---
Down Payment
--.-% $---,---
Minimum required downpayment for this mortgage-type is --%.
Lenders may require you have savings and investments of $ available to cover closing costs and down payment for this home while maintaining 3 months of mortgage payments in reserve.
Down payment$
Closing costs$
3 month reserve$
Recommended Savings$
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What makes SmartAsset's number different?
Our holistic approach to home affordability may result in a different home value suggestion than other websites. Check out some of the reasons why our suggestion is more accurate:
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Mortgage Payment $*
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Other Expenses
Property Tax $
Home Insurance $
HOA / Condo Fees $
Total Closing Costs
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Down Payment $
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Our home affordability tool calculates how much house you can afford based on your income, savings and monthly debt obligations, as well as the mortgages available in your area. We also calculate and take into consideration all of the relevant closing costs, like title insurance and local taxes.

How We Calculate Your Home Value

Accurately calculating how much house you can afford is actually a little complicated but we'll try to make it simple here. We start by calculating how much money you can borrow based on your income and monthly debt payments. Generally, we recommend that the sum of your total monthly home payment (mortgage payments plus real estate taxes plus mortgage insurance) and your total monthly debt payments (like student loans) should be less than 36% of your pre-tax income. Using this assumption and looking at actual mortgages available in your neighborhood for those with your credit score, we can calculate your total borrowing potential. We then look at your savings to see what kind of down payment you can afford. Using your borrowing potential and what you have available for a down payment we can calculate a comfortable home value for you.

How We Know What Mortgage to Use

The type of mortgage you choose can have a dramatic impact on the amount of house you can afford, especially if you have limited savings. FHA loans generally require lower down payments (as low as 3.5% of the home value), while other loan types can require up to 20% of the home value as a minimum down payment. We analyze all mortgage types to arrive at our calculation.

Mortgage data: We use live mortgage data when calculating your home affordability.

Closing costs: We have built local datasets so we can calculate exactly what closing costs will be in your neighborhood.

Homeowner’s insurance: We assume homeowner’s insurance is a percentage of your overall home value.

Debt-to-income threshold: We recommend that you do not take on a monthly home payment which is more than 36% of your monthly income. Our tool will not allow that ratio to be higher than 43%.

How much house can I afford?

Buying a new home should be exciting but it should also provide you with a sense of stability and financial security. Living month to month, with barely enough income to meet all of your obligations, the threat of foreclosure looming if you slip up—well that’s the wrong kind of excitement. That’s why it’s so important that you know ahead of time the answer to that very important question, How much house can I afford?

The 36% rule

In order to avoid the nightmare scenario of buying a house that breaks the bank, you’ll need to figure out a housing budget that makes sense for you. One guideline that can be helpful in doing so is the 36% rule, which says that your total debt payments should never add up to more than 36% of your gross (i.e. pre-tax) income. In practice, that means that for every dollar you earn each month, you should dedicate no more than 36 cents to paying off your mortgage, student loans, credit card debt and so on. (Side note: since property tax and insurance payments are required to keep your house in good standing, those are both considered debt payments in this context.)

This is more a rule of thumb than a strict limit, but most banks don’t like to make loans to borrowers with bad debt-to-income ratios. Although it’s possible to find lenders willing to do so (often at higher interest rates), the thinking behind the rule is instructive. If you are spending 40% or more of your pre-tax income on pre-existing obligations, a relatively minor shift in your income or expenses could wreak havoc on your budget. Banks don’t like to lend to borrowers who have a low margin of error.

But it isn’t only in your lender’s interest to keep this rule in mind when looking for a house; it’s in yours too. Since lenders tend to charge higher interest rates to borrowers who break the 36% rule, you’ll probably end up spending more on interest if you go for a house that places you beyond that limit. Furthermore, while the difference between the house that eats up 45% of your monthly income and one that only takes 35% is likely not huge, that extra 10% of income can be critical if your financial situation changes (like say your utility payments rise or gas prices skyrocket). With something as important as a house, it’s nice to have a bit of a cushion for when things go wrong.

Speaking of cushions...

Another key number in determining the answer to How much house can I afford? is your down payment. The larger the down payment; the larger the house, right? Well, yes, but before you go and empty out your savings account, keep in mind that lenders generally want you to have a cash reserve remaining after you’ve moved in. Why? Having some money in the bank after you buy is a great way to help ensure that you don’t find yourself worrying about the two dirty words in homeownership: default and foreclosure.

While maintaining a debt-to-income ratio under 36% protects you from minor changes in your finances, a cash reserve protects against major ones. At a minimum, it’s a good idea to be able to make three months’ worth of housing payments out of your reserve, but something like six months would be even better. That way, if you experience a loss of income and need to find a new job, or if you decide to sell your house, you have plenty of time to do so without missing any payments (and, in turn, wrecking your credit).

Think of your cash reserve as the braking distance you leave yourself on the highway—if there’s an accident up ahead, you want to have enough time to slow down, get off to the side or otherwise avoid disaster.

The Housing Match Game

So now we have two guidelines that can help you figure out the answer to How much house can I afford? The first is the 36% rule, which says that your debt-to-income ratio should stay under 36%; that is, your total debt payments, including your housing payment, should never be more than 36% of your income. The second regards your cash reserve: you should always try to keep at least three months’ worth of payments in the bank in case of an emergency. That all sounds great in theory, but how does it play out in the real world? To demonstrate that, let’s take a look at a few hypothetical homebuyers and some hypothetical houses to see who can afford what. It’s… the Housing Match Game!!

The contestants
Ages Monthly Income Monthly Debt Payments Savings
Peter & Sally C. 40, 39 $3,500 $250 $10,000
Mary P. 29 $7,250 $500 $40,000
Mark Z. 84 $40,000 none $185,000

House #1 is a 1930s-era three-bedroom ranch in Ann Arbor, Michigan. This 831 square-foot beauty has a wonderful backyard, and includes a two-car garage. While the interior needs some love, the house is a deal at a listing price of just $135,000. So who can afford this house? Peter & Sally C., Mary P. and Mark Z.

Analysis: All three of our homebuyers can afford this one. For Mary P. and Mark Z., who can both afford a 20% down payment (and then some), the monthly payment will be around $800, well within their respective budgets. The math is a little trickier for Peter and Sally, but it still works out. They can afford to make a down payment of $7,000, just over 5% of the home value, which means they’ll need a mortgage of about $128,000. In Ann Arbor, their mortgage, tax and insurance payments will be around $950 dollars a month. That, combined with their debt payments, adds up to $1,200 – or around 34% of their income.


House #2 is a 2,100 square-foot architectural masterpiece in San Jose, California. Built in 1941, it sits on a 10,000 square-foot lot, and has three bedrooms and two bathrooms. It’s listed for $820,000, but could probably be bought for $815,000. So who can afford this house? Mark Z.

Analysis: While this one’s a little outside of our other homebuyers’ price range, Mark Z. can make it happen. Using the 36% rule, Mark’s monthly housing budget is around $14,000. The mortgage, property tax and insurance on this property will total somewhere around $4,100 – so he could actually afford to pay more on a monthly basis. For a house this expensive, lenders require a larger down payment—20% of the home value—so Mark Z. is limited to a house worth five times his savings (less cash reserve equaling three months’ payments).


House #3 is a two-story brick cottage in Houston, Texas. With four bedrooms and three baths, this 3,000 square-foot gem is the perfect place to raise a family. And it only costs $300,000! So who can afford this house? Mary P. and Mark Z.

Analysis: Mark Z. can easily afford this place, but for Mary P. it’s a closer call. Assuming she makes a down payment of $27,300, or just under 10%, her monthly housing payments will be $2,110. Add in the $500 student loan payments she’s making each month, and you’ve got total debt payments of $2,610, which is exactly 36% of her income. Plus, even after she pays her down payment and all the closing costs, she’ll have around $7,800 left in savings, enough for four months’ worth of housing payments.


What you can afford vs. what you should buy

In our game, even though Mark Z. can technically afford House #2 and Mary P. can technically afford House #3, both of them may decide not to. If Mark Z. waits another year to buy, he can use some of his high income to save for a larger down payment. Mary P. may want to find a slightly cheaper home so she’s not right at that maximum of paying 36% of her pre-tax income toward debt.

The problem is that some people believe the answer to How much house can I afford? is the same as the answer to What size mortgage do I qualify for? What a bank (or other lender) is willing to lend you is definitely important to know as you begin house hunting. But ultimately, you have to live with that decision. You have to make the mortgage payments each month and live on the remainder of your income.

So that means you’ve got to do some homework (sorry!). The factors you should be looking at include those about your personal financial situation (income, credit rating, existing debt, down payment and savings) and external factors (mortgage term, current interest rates, private mortgage insurance and the local real estate market). Plugging all of these relevant numbers into a home affordability calculator (like the one above – check it out!) can help you determine the answer to How much house can I afford? (It helped Peter & Sally C., Mary P. and Mark Z.) But beyond that you’ve got to think about your lifestyle- like how much money that leaves you for travel, other financial goals, etc. You might find that you don’t want to buy the most expensive home you can afford.

Advice for Mary (and the rest of us)

After all, there is something to be said for the idea of not maxing out your credit possibilities. If you look at houses that are priced somewhere below your maximum, you leave yourself some options. For one, you will have room to bid if you end up competing with another buyer for the house. As another alternative, you will have money left over for renovations and upgrades just in case the house needs a little work in order to fully transform into your dream home.

Perhaps more importantly, however, you avoid putting yourself at the limits of your financial resources if you choose a house with a price lower than your maximum. You will have an easier time making your payments, or (better yet!) you will be able to pay extra on the principal and save yourself money by paying off your mortgage early.

Advice for Mark (and the rest of us)

Along the same lines of thinking, you might consider holding off on buying the house. The bigger the down payment you can bring to the table, the smaller the loan you will have to pay interest on. In the long run, the largest portion of the price you pay for a house is typically the interest on the loan. In the case of a 30-year mortgage (depending, of course, on the interest rate) the loan’s interest can add up to three or four times the listed price of the house (yes, you read that right!). For the first ten years of a 30-year mortgage, you could be paying almost solely on the interest and hardly making a dent in the principal on your loan.

That’s why it can make a significant difference if you make even small extra payments toward the principal, or start with a bigger down payment (which of course translates into a smaller loan). If you can afford a 15-year mortgage rather than a 30-year mortgage, your monthly payments will be higher, but your overall cost will be drastically lower because you won’t be paying nearly so much interest.

That sounds great, but it’s not always the best option either. If the 15-year mortgage puts you uncomfortably close to your maximum—meaning you won’t have any room in your budget for emergencies or extras—you could always lock into a 30-year mortgage while making a commitment to yourself to make payments the size of the 15-year plan unless there’s a financial emergency. If you go with this plan it’s important to make sure your mortgage terms do NOT include a penalty for paying off the loan early.

So, should I buy it?

When it comes to answering the question of How much house can I afford?, it’s important to remember the mortgage lender is only telling you that you can buy a house, not necessarily that you should. Only you can decide whether you should make that purchase.

Most Affordable Places in America

SmartAsset created an affordability index to locate the most affordable housing markets in the country. Zoom between states and the national map to see the top markets in each region. This interactive map allows you to see the most affordable cities in the country and in each state. Also, scroll over any county to learn about housing affordability in that market.

Least
Most
Rank City Avg. Closing Costs Annual Property Tax Annual Homeowner's Insurance Avg. Annual Mortgage Payment Median Income

Methodology There’s a lot more to home affordability than the price a homebuyer agrees to pay the seller. To find the most affordable places to buy a home, SmartAsset took a holistic approach, considering closing costs, real estate taxes, homeowners insurance and mortgage rates in our analysis.

Specifically, we found the total cost over five years of these four expenses—closing costs, taxes, insurance and mortgage payments—for the average home in every county in the U.S., and every city with a population greater than 5,000. We then took that five-year cost as a proportion of median household income in each county and city to determine affordability.

The most affordable cities and counties were those in which total housing costs on an average house accounted for the smallest proportion of the median income.

Sources: Bankrate, US Census Bureau 2012 American Community Survey, government websites, SmartAsset, Bank of America, Capital One, Chase, Citibank, SunTrust, US Bank, Wells Fargo