How Much Mortgage Can You Afford?

Start with Your Budget, Not Just the Lender’s Number

A lender can tell you the maximum amount you’re qualified to borrow, but that number may be more than you can comfortably pay. Your mortgage payment is one part of your overall budget. If you spend most of your income on housing, you may have less room for other goals, like saving for emergencies or retirement. A good starting point is to look at your monthly income and expenses, and then decide what housing payment fits your life.

The Consumer Financial Protection Bureau (CFPB) emphasizes that the amount you can borrow is not the same as the amount you can afford. You should consider your other financial priorities and obligations when deciding how much to spend on a home.

• List your gross monthly income (before taxes and other deductions).
• List your regular monthly debt payments—credit cards, car loans, student loans, and other obligations.

Sources: Consumer Financial Protection Bureau

The 28% Rule: A Common Guideline

The 28% rule is a widely used guideline for housing affordability: keep your monthly housing costs—including the mortgage payment, property taxes, homeowners insurance, and any HOA fees—at or below 28% of your gross monthly income. This rule is not a legal requirement; it’s a common guideline to help you avoid becoming house-poor.

Sources: Consumer Financial Protection Bureau

Debt-to-Income Ratio: What Lenders Check

The debt-to-income (DTI) ratio is a key measure lenders use to assess whether you can repay a mortgage. It’s calculated by dividing your total monthly debt payments—including your projected mortgage payment—by your gross monthly income. A lower DTI is generally better, as it signals you have enough income to cover your debts.

Under the ability-to-repay rule, lenders are required to make a reasonable, good-faith effort to determine that you can afford the loan. For a Qualified Mortgage, the most common type, your DTI must be 43% or less, with some exceptions. Your DTI includes your mortgage payment plus your other monthly debt payments, such as auto loans, student loans, and credit card minimums.

• To estimate your DTI, add up all monthly debt payments and your estimated mortgage payment, then divide by your gross monthly income.
• A DTI of 43% or less is typically required for a Qualified Mortgage.
• Lenders may allow higher DTI ratios for certain loan types, but those limits are not covered in this guide.

Sources: Consumer Financial Protection Bureau

Down Payment Impact: Cash Needed Upfront

Your down payment affects how much you need to borrow. A larger down payment reduces the loan amount, which can lower your monthly payment and total interest costs. It also reduces the risk to the lender.

• Calculate a potential down payment and run the numbers on a few price points.
• Use the 28% rule and DTI limits to test whether the monthly payment stays in a comfortable range.

Sources: Consumer Financial Protection Bureau

Other Housing Costs: Taxes, Insurance, and HOA Fees

When you determine how much mortgage you can afford, don’t forget the other recurring costs that come with homeownership. These include property taxes, homeowners insurance, private mortgage insurance (if applicable), and homeowners association (HOA) dues if you buy in a community with an HOA. These costs are typically added to your monthly mortgage payment or paid separately, but they all count toward your housing budget.

The CFPB advises homebuyers to consider these expenses when calculating affordability. If you only look at the principal and interest payment, you might underestimate your true monthly housing cost by hundreds of dollars.

• Property taxes vary by location and can change over time.
• Homeowners insurance protects your home and belongings; costs vary by coverage.
• HOA fees cover community maintenance and amenities, but they can rise.

Sources: Consumer Financial Protection Bureau

Using Affordability Calculators the Right Way

Online mortgage affordability calculators can give you a quick estimate, but they are only as good as the inputs you provide. A typical calculator asks for your gross monthly income, monthly debts, down payment, interest rate, and loan term.

Remember that calculators use assumptions that may not match your situation. They may not account for property taxes, insurance, or HOA fees unless you add them manually. Use the results as a starting point—not as a final answer—and always review your full budget.

• Gather your income, debts, down payment amount, and current interest rate estimates.
• Add estimated property tax, insurance, and HOA costs to the monthly payment.
• Run a few scenarios with different interest rates to see how much your buying power changes.

Sources: Consumer Financial Protection Bureau