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A house is one of the biggest purchases you can make, so figuring out how much you can afford is a key step in the home-buying process. You’ll need to start by weighing how much money you have coming in — your monthly earnings from your job, investments and any other streams of income — versus how much you have going out to cover costs like student loans, credit card balances and car payments.

Your Monthly Budget:


Calculator: Start by crunching the numbers

  1. Figure out how much you (and your partner or co-borrower, if applicable) earn each month. Include all your revenue streams, from alimony to investment profits to rental earnings.
  2. Next, list your estimated housing costs and your total down payment. Include annual property tax, homeowners insurance costs, estimated mortgage interest rate and the loan terms (or how long you want to pay off your mortgage). The popular choice is 30 years, but some borrowers opt for shorter loan terms.
  3. Lastly, tally up your expenses. This is all the money that goes out on a monthly basis. Be accurate about how much you spend because this is a big factor in how much you can reasonably afford to spend on a house.

Why it’s smart to follow the 28/36% rule

Most financial advisors agree that people should spend no more than 28 percent of their gross monthly income on housing expenses, and no more than 36 percent on total debt. The 28/36 percent rule is a tried-and-true home affordability rule of thumb that establishes a baseline for what you can afford to pay every month. For example, let’s say you earn $4,000 each month. That means your mortgage payment should be a maximum of $1,120 (28 percent of $4,000), and your other debts should add up to no more than $1,440 each month (36 percent of $4,000). What do you do with what’s left? You’ll need to determine a budget that allows you to pay for essentials like food and transportation, wants like entertainment and dining out, and savings goals like retirement.

How much mortgage payment can I afford?

As you think about your mortgage payments, it’s important to understand the difference between what you can spend versus what you can spend while still living comfortably and limiting your financial stress. For example, let’s say that you could technically afford to spend $4,000 each month on a mortgage payment. If you only have $500 remaining after covering your other expenses, you’re likely stretching yourself too thin. Remember that there are other major financial goals to consider, too, and you want to live within your means. Just because a lender offers you a preapproval for a large amount of money, that doesn’t mean you should spend that much for your home.

How to determine how much house you can afford

Your housing budget will be determined partly by the terms of your mortgage, so in addition to doing an accurate calculation of your existing expenses, you want to have an accurate picture of your loan terms and shop around to different lenders to find the best offer. Lenders tend to give the lowest rates to borrowers with the highest credit scores, lowest debt and substantial down payments.

How do current mortgage rates impact affordability?

Over the past year or so, the Federal Reserve repeatedly raised interest rates in an attempt to bring down inflation. It worked — inflation is much lower now than it was, though still not at the Fed’s goal of 2 percent — but it caused mortgage rates to rise in turn. Increased rates often dampen homebuyer enthusiasm, or even drive them out of the market entirely, which ultimately drives the cost of homes down. However, if you’re still in the market to buy a home, higher interest rates mean your monthly mortgage payments will be steeper. As an example, with a 5 percent interest rate, the principal and interest on a 30-year $600,000 mortgage would be $3,220 per month, according to Tellernote’s mortgage calculator. At 8 percent, that figure would go up to $4,402. (After dropping as low as 3.08 percent in late 2020, 30-year fixed mortgage rates hit 7.8 percent in October 2023.)