To feel confident about buying a house you can afford, enter your monthly income into our calculator and instantly get a list of home prices that fit your budget.
As you can see from our calculator, how much house you can afford really depends on the relationship between your income and mortgage.
To figure out how much mortgage you can afford with your income, different lenders use different guidelines—but most lenders dish out mortgages that are way too expensive and keep borrowers in debt for decades!
We want to help you buy a home that’s a blessing, not a burden. And the only way to do that is to calculate your home-buying budget the smart way—and stick to it!
See how much house you can afford with our free mortgage calculator!
That’s what our calculator does for you. How does it work? We’ll show you—get ready for some math!
How Much House Can I Afford Based on My Salary?
To calculate how much house you can afford, use the 25% rule—never spend more than 25% of your monthly take-home pay (after tax) on monthly mortgage payments.
That 25% limit includes principal, interest, property taxes, home insurance, private mortgage insurance (PMI) and don’t forget to consider homeowners association (HOA) fees. Whoa—those are a lot of variables!
But don’t worry, our full-version mortgage calculator makes it super easy to calculate those numbers so you can preview what your monthly mortgage payment might be.
How Will My Debt-to-Income Ratio Affect Affordability?
When you apply for a mortgage, lenders usually look at your debt-to-income ratio (DTI)—your total monthly debt payments divided by your gross monthly income (before tax) written as a percentage.
Lenders often use the 28/36 rule as a sign of a healthy DTI—meaning you won’t spend more than 28% of your gross monthly income on mortgage payments and no more than 36% on total debt payments (including mortgage, student loan, car loan and credit card debt).
If your DTI ratio is higher than the 28/36 rule, some lenders will still be willing to approve you for financing. But they’ll charge you higher interest rates and add extra fees like mortgage insurance to protect themselves (not you) in case you get in over your head and can’t make mortgage payments.
How Much House Does Dave Ramsey Say I Can Afford?
For decades, Dave Ramsey has told radio listeners to follow the 25% rule when buying a house—remember, that means never buy a house with a monthly mortgage that’s more than 25% of your monthly take-home pay.
At Ramsey, we also teach people they can’t afford to buy a house unless they meet these qualifications:
- Are completely debt-free
- Have an emergency fund of 3–6 months of expenses
- Saved a down payment of 10–20%
- Can qualify for a 15-year fixed-rate conventional mortgage
The reason we continue to teach these guidelines at Ramsey is because when people throw a mortgage on top of all their debt, unexpected expenses or a job loss can easily crush them financially. We don’t want that to happen to you.
How to Calculate How Much House You Can Afford
Okay, all you really have to do is crunch a few numbers to figure out how much house you can afford. And if math isn’t your thing, hang in there. We’ll walk you through it step by step. We’ve never lost a patient.
And for you married folks, make sure you go over the results with your spouse. You both need to be on the same page when it comes to your budget and what you can actually pay. After all, shopping for your “home sweet home” will feel—dare we say—romantic once you and your sweetheart set shared expectations.
Simply follow the steps below.
1. Figure Out 25% of Your Take-Home Pay
Let’s say you earn $5,000 a month (after tax). According to the 25% rule we mentioned earlier, that means your monthly house payment should be no more than $1,250.
Stick to that number and you’ll have plenty of room in your budget to tackle other financial goals like home maintenance and investing for retirement.
2. Use Our Mortgage Calculator to Determine Your Home Budget
Sure, you could crunch the numbers yourself by dividing a home price by 180 months (that's a 15-year mortgage) and then multiplying the decreasing monthly principal balance by your interest rate. But if you're anything like us, you probably broke a sweat just reading that formula.
To save yourself the time and headache of doing a ton of math, we built a mortgage calculator to do that for you—phew!
Sticking with our example of an income of $5,000 a month, you could afford these options on a 15-year fixed-rate mortgage at a 4% interest rate:
- $187,767 home with a 10% down payment ($18,777)
- $211,238 home with a 20% down payment ($42,248)
- $241,415 home with a 30% down payment ($72,424)
- $281,650 home with a 40% down payment ($112,660)
Remember: This is just a ballpark! Don’t forget that grown-up stuff like property taxes and home insurance will top off your monthly payment with another few hundred dollars or so (icing on the cake). And if you think you’ll be buying a home that’s part of a homeowners association (HOA), you’ll need to factor those lovely fees in as well.
For example, if you plug in a mortgage amount of $211,238 with a 20% down payment at a 4% interest rate, you’ll find that your maximum monthly payment of $1,250 increases to $1,515 when you add in $194 for taxes and $71 for insurance. To get that number back down to a monthly housing budget of $1,250, you’ll need to lower the price of the house you can afford to $172,600.
Use our calculator to try out other combinations to find the right mortgage amount, interest rate and down payment combo that will work for your budget.
3. Don’t Forget to Factor in Closing Costs
Alright, don’t freak out here. But a down payment isn’t the only cash you’ll need to save up to buy a home. There are also closing costs to consider.
On average, closing costs are about 3–4% of the purchase price of your home.1 Your lender and real estate agent buddies will let you know exactly how much your closing costs are so you can pay for them on closing day.
These costs cover important parts of the home-buying process, such as:
- Appraisal fees
- Home inspections
- Credit reports
- Home insurance
Don’t forget to factor your closing costs into your overall home-buying budget. For example, if you’re purchasing a $200,000 home, multiply that by 4% and you’ll get an estimated closing cost of $8,000. Add that amount to your 20% down payment ($40,000), and the total cash you’ll need to purchase your home is $48,000.
If you don’t have the additional $8,000 for closing costs, you’ll either need to hold off on your home purchase until you’ve saved up the extra cash or you’ll have to shoot a little lower on your home price range.
Whatever you do, don’t let the closing costs keep you from making the biggest down payment possible. The bigger the down payment, the less you’ll owe on your mortgage!
4. Consider Homeownership Costs
Okay, your emergency fund can cover major home disasters. But if you’ll be saving up for a few home upgrades or you’re a first-time homeowner, build room in your monthly budget or start a sinking fund for those expenses so there are no nasty surprises.
These costs may include:
- Increased utilities. On average, if you’re used to paying $100–150 on utilities as a renter in an apartment, you might need to bump up that budget closer to $400 a month as a homeowner.2
- Maintenance and repairs. Most people complete an average of seven home maintenance projects in a year, costing about $1,100 (in 2020, this shot up to 3,200).3 These could include things like landscaping or routine services like pest control and HVAC tune-ups.
- Upgrades and additions. If you’ll be saving up for a few major home upgrades, you’ll need to build room in your monthly budget for those expenses too. A minor kitchen remodel alone costs over $26,000.4
5. Save a Bigger Down Payment to Make Your Home More Affordable
Remember, your down payment amount makes a big impact on how much home you can afford. The more cash you put down, the less money you’ll need to finance. That means lower mortgage payments each month and a faster timeline to pay off your home loan! Just imagine a home with zero payments!
Now, we’re always going to tell you that the best way to buy a home is with 100% cash. But if saving up to pay in cash isn’t reasonable for your timeline, you’ll probably wind up getting a mortgage.
If that’s you, at the very least, save up a down payment that’s 10% of the home price. But a better idea is to put down 20% or more. That way you won’t have to pay private mortgage insurance (PMI).
PMI protects the mortgage company in case you don’t make your payments and they have to take back the house (foreclose). PMI is a yearly fee that usually costs 1% of the total loan value and is—you guessed it—yet another expense that’s added to your monthly payment. (Boo!)
Let’s backtrack for a second: PMI may change how much house you thought you could afford, so be sure to include it in your calculations if your down payment will be less than 20%. Or you can adjust your home price range so you can put down at least 20% in cash.
Trust us. It’s worth taking the extra time to save for a big down payment. Otherwise, you’ll be suffocating under a budget-crushing mortgage and paying thousands more in interest and fees.
Know Which Mortgage Option Is Right for You
Okay, now let’s talk about types of mortgages. Most of them (ARM, FHA, VA, USDA) are garbage designed to help you pay for a home even if you can’t afford it.
But when you do the math, you find that these mortgages charge you tens of thousands of dollars more in interest and fees and keep you in debt for decades longer than the option we recommend.
That’s why getting the right mortgage is so important! Setting boundaries on the front end makes it easier to find a home you love that’s in your budget.
Here are the guidelines we recommend:
- A fixed-rate conventional loan. With this option, your interest rate is secure for the life of the loan, keeping you protected from the rising rates of an adjustable-rate loan.
- A 15-year term. Your monthly payment will be higher with a 15-year term, but you’ll pay off your mortgage in half the time of a 30-year term—and save tens of thousands in interest.
Your mortgage lender will most likely approve you for a bigger mortgage than you can actually afford. Do not let your lender set your home-buying budget. Ignore the bank’s numbers and stick with your own.
Knowing your house budget and sticking to it is the only way to make sure you get a mortgage you can pay off as fast as possible.
What Salary Do You Need to Buy a $400K House?
Now let’s take what we’ve learned and put it into action with an example. Let’s say you want to buy a $400,000 house. First, you’ll need to do the hard work of saving up $80,000 in cash as a 20% down payment.
With a 15-year mortgage at a 3% interest rate, your monthly payment could be around $2,200 (that’s only principal and interest). To manage that payment, you’d need to be earning at least $8,800 as your monthly take-home pay ($2,200 divided by 25%).
So, to buy a $400,000 home, you’d need to be earning a take-home salary of more than $105,000 per year ($8,800 x 12 months). Keep in mind, you’d actually need more than that after you add the cost of property tax and home insurance into your mortgage.
If that doesn’t sound like you, don’t worry. Try saving a bigger down payment to lower your monthly mortgage until it’s no more than 25% of your take-home pay. Or look for a smaller starter home in a more affordable neighborhood.
Work With a Buyer’s Agent We Trust
For more guidance on buying a house you can afford, work with a real estate agent. A good agent will help you set the right expectations when shopping for a home in your price range—they may even be able to find you a home sale others don’t know about.
For a quick and easy way to find an agent we trust, try our Endorsed Local Providers (ELP) program. We only recommend agents who actually care about the financial path you’re on and won’t push you to overspend on a house just so they can bring home a bigger commission check.