How much home can I afford?

 

"How much house can I afford?" is a question we hear frequently from those looking to purchase a new home. The mortgage you can afford depends on many factors, including your target monthly payment, annual income, and down payment amount.

A mortgage affordability calculator helps you determine what you can comfortably afford to pay based on your personal circumstances. It evaluates the percentage of your monthly income that goes toward existing debts to help identify how much extra you have to spend on a mortgage payment. Your remaining income after debt and taxes should be enough to cover living expenses and savings goals, and it is wise to have some cash set aside to accommodate any unexpected repairs or financial emergencies.

ANNUAL INCOME
This is the combined annual income for you and your co-borrower. Include all income before taxes, including base salary, commissions, bonuses, overtime, tips, rental income, investment income, alimony, child support, etc.
DOWN PAYMENT
This is the amount of money you will put towards a down payment on the house. Make sure you still have cash left over after the down payment to cover unexpected repairs or financial emergencies.
MONTHLY DEBT

Include all of you and your co-borrower's monthly debts, including: minimum monthly required credit card payments, car payments, student loans, alimony/child support payments, any house payments (rent or mortgage) other than the new mortgage you are seeking, rental property maintenance, and other personal loans with periodic payments.

Do NOT include: credit card balances you pay off in full each month, existing house payments (rent or mortgage) that will become obsolete as a result of the new mortgage you are seeking, or the new mortgage you are seeking.

INTEREST RATE
This is the interest rate for the loan you will receive. It is pre-filled with the current 30-yr fixed average rate on Zillow Mortgages.
DEBT-TO-INCOME (DTI)
Your DTI is expressed as a percentage and is your total "minimum" monthly debt divided by your gross monthly income. The conventional limit for DTI is 36% of your monthly income, but this could be as high as 41% for FHA loans. A DTI of 20% or below is considered excellent.
INCOME TAXES
This is an annual tax that governments place on individuals' income. It includes federal tax, most states and some local entities. The national average is around 30% but can vary based on income, location, etc.
PROPERTY TAXES
The mortgage payment calculator includes estimated property taxes. The value represents an annual tax on homeowners' property and the tax amount is based on the home's value.
HOMEOWNERS INSURANCE
Commonly known as hazard insurance, most lenders require insurance to provide damage protection for your home and personal property from a variety of events, including fire, lightning, burglary, vandalism, storms, explosions, and more. All homeowner's insurance policies contain personal liability coverage, which protects against lawsuits involving injuries that occur on and off your property.
MORTGAGE INSURANCE (PMI)
Mortgage insurance is required primarily for borrowers with a down payment of less than 20% of the home's purchase price. It protects lenders against some or most of the losses that can occur when a borrower defaults on a mortgage loan. Also known as PMI (Private Mortgage Insurance).
HOA DUES
Typically, owners of condos or townhomes are required to pay homeowners association dues (known as HOA fees), to cover common amenities or services within the property such as garbage collection, landscaping, snow removal, pool maintenance, and hazard insurance.
LOAN TERM
This is the length of time you choose to pay off your loan (e.g., 30 years, 20 years, 15 years, etc.)
FULL REPORT
Click on the Full Report link to see a printable report that includes mortgage payment breakdowns, total payments, and a full mortgage payment amortization calculation (table and chart). Amortization table includes ability to view amortization by year or by month.

 

Whether you’re a first-time buyer looking for the perfect starter house or a seasoned pro trading up to your waterfront dream home, you are probably asking the same questions: Can I afford this? And is this the right move at the right time?

To get a more accurate picture of what you can afford to borrow, you should analyze three things: you and your co-borrower’s income, your budget and your savings.

Income Questions To Ask Yourself

  • Do you have job security?
  • Do you work in a commission-based job? Are you confident that your commission structure and monthly income are stable?
  • Do you expect your and your co-borrower’s income to increase or at least stay the same?
  • Are you expecting or planning to have a child in the near future? Do you know if your salaries and budget will change once the baby is born? Will one of you be staying at home to take care of the baby (which may reduce your monthly take home salary)?

 

Your Monthly Budget

It’s very important to know not only how much you earn but how much you spend per month. Even with low mortgage rates, a mortgage payment and the additional monthly expenses that go along with owning a home could break your budget.

You should outline how much you currently spend on the following categories: auto and transportation, bills and utilities, education, entertainment, food and dining, gifts and donations, health and fitness, home, kids, personal care, pets, shopping, taxes, travel and other miscellaneous monthly expenses. How much do you have left over to put toward a mortgage?

A typical rule of thumb is you should not put more than 36 percent of your income toward debts (mortgage payments, car payments and credit card payments), 31 percent toward taxes and then have 33 percent for everything else (including savings or investments). Of course you will probably have to consider other factors such as the average cost of living in your area, median house prices and your immediate need for more or different housing space.


 

Savings

You will likely need a significan down payment in order to buy a new house (mostly likely 3.5 percent or more; 20 percent down is the most common). Do you think you will have enough money for the necessary down payment, closing costs, plus the new monthly mortgage payment? Will you have enough money either in your savings or your monthly budget to buy discretionary items? Do you have enough money in savings in case of an emergency such as an injury or a broken water heater?

It is important to not completely raid your savings when you buy a new house. It is always advised to expect the unexpected with homeownership. In general, you should budget 1 to 3 percent of your budget on house repairs and maintenance.

To easily determine how much house you can afford, use the Zillow home affordability calculator.