Buying a home is exciting—until you start asking the big question: How much mortgage can I actually afford? Cue the calculator panic. But don’t worry, this guide breaks it down into plain English, with a little humor and a lot of clarity.
We’ve teamed up with loan officers and financial experts to give you the real deal—no fluff, just smart tips to help you figure out your true budget.
Step 1: Know Your Monthly Comfort Zone
Before you worry about loan terms or interest rates, ask yourself this: How much can I comfortably spend on housing each month without eating instant noodles for the next 30 years?
A good rule of thumb: Your total monthly housing payment (including mortgage, taxes, insurance, HOA fees, etc.) should ideally be no more than 28–31% of your gross monthly income.
Example: If you make $6,000 a month before taxes, aim for a housing payment around $1,680–$1,860.
Step 2: Understand the 3 Key Ratios Lenders Use
Lenders look at your finances in three main ways:
1. Front-End Ratio
This is the percentage of your income that would go toward housing expenses.
2. Back-End Ratio
This includes all your monthly debt payments—credit cards, student loans, car loans plus the mortgage. Most lenders prefer this to stay under 43%.
3. Debt-to-Income (DTI) Ratio
The big one. It tells lenders whether you can handle a mortgage on top of your current debt.
Loan Officer Tip: “Even with great credit, a high DTI can limit how much you’re approved for. Keep your debt load reasonable.”
Step 3: Factor in the Real Costs of Homeownership
Buying a house isn’t just about affording the mortgage. There are plenty of “oh right” expenses:
- Property taxes
- Homeowners insurance
- Private mortgage insurance (PMI) if your down payment is under 20%
- HOA fees (if applicable)
- Maintenance and repairs
Reality Check: Just because you can get approved for a $500,000 mortgage doesn’t mean you should. Focus on your lifestyle, savings goals, and peace of mind.
Step 4: Use Online Mortgage Calculators (Smartly)
Plug in your income, debts, and interest rate assumptions to see what monthly payment fits your budget.
Recommended Tools:
Pro Tip: Use a slightly higher interest rate than today’s to see if you’d still feel comfortable—just in case rates climb before you lock in.
Step 5: Get Pre-Approved to Know for Sure
A pre-approval isn’t just helpful—it’s crucial. It tells you how much you can borrow and shows sellers you’re serious.
What You’ll Need:
- Income and asset documentation
- Credit check
- Debt breakdown
Loan Officer Insight: “Pre-approval doesn’t commit you to a lender—it just gives you the confidence to shop smarter.”
Final Thoughts
Figuring out how much mortgage you can afford is part math, part mindset. Use the guidelines, but trust your gut too. If the monthly payment feels like a stretch—pause. You want to buy a home, not a stress ball.
Need help running the numbers or finding a loan officer? We’ve got trusted partners who can walk you through it.
FAQs
Can I afford a mortgage with student loans?
Yes, but lenders will factor that into your DTI ratio. Manageable debt levels are key.
Should I spend the full amount I’m approved for?
Not necessarily. Think about long-term financial comfort, not just short-term approval.
What’s more important—monthly payment or home price?
Monthly payment. It’s what you’ll actually feel in your wallet every month.
