How Much Home Can You Afford? A Comprehensive Guide

5/28/2025

 

How Much Home Can You Afford?

Two story red home

 

How Much Home Can You Afford? A Step-by-Step Guide

At LincOne Federal Credit Union, discover how much home you can afford with our comprehensive guide. Learn about debt-to-income ratios, down payments, mortgage loan calculators, and more.

How Much Home Can You Afford?

Buying a home is a significant financial decision that requires careful planning and a clear understanding of your budget. The key question many potential homeowners ask is, "How much home can I afford?" The answer depends on various factors, including your income, monthly debts, credit score, and savings for a down payment. This guide we’ve created will walk you through the essential considerations and tools to help you make an informed decision.

 

Understanding Your Budget

Debt-to-Income Ratio (DTI)

Your debt-to-income ratio is a critical factor in determining how much home you can afford. Most lenders follow the 28/36 rule:

  • 28% Rule: Your monthly housing expenses (including mortgage, taxes, and insurance) should not exceed 28% of your gross monthly income.

  • 36% Rule: Your total monthly debts, including housing costs, car loans, and credit card payments, should not exceed 36% of your gross monthly income.

For example, if your gross monthly income is $6,000, your maximum housing budget would be $1,680 (28% of $6,000), and your total monthly debt payments should not exceed $2,160.

Gross Monthly Income and Total Debts

Start by calculating your gross monthly income and subtracting all recurring debts. Use this number to understand what fits comfortably within your budget without overextending yourself.

 


Tools to Help You Calculate Affordability

Mortgage Calculator

A home affordability calculator can provide a detailed estimate of the price range suitable for you. Click here to begin pricing out your future home. The calculator factors in:

  • Gross income

  • Monthly debts

  • Down payment amount

  • Interest rates and loan terms

Credit Score

Your credit score directly impacts the mortgage rate you qualify for. A higher score can significantly lower your monthly payments. Aim for a score above 700 to access the most competitive rates. You can click here to check your credit score today. 

Down Payment

A larger down payment reduces your home loan amount and eliminates the need for private mortgage insurance (PMI) if you put down 20% or more. For a $300,000 home, a 20% down payment would be $60,000. While this is not necessary for every homebuyer to secure a loan and buy a home, it will lessen your monthly mortgage payment and leave more room in your budget.  

 

Factors Affecting Affordability

Closing Costs

On top of the down payment, expect to pay 2% to 5% of the purchase price in closing costs. For a $300,000 home, this could range from $6,000 to $15,000.

Property Taxes and Insurance

Property taxes vary by location and can impact your affordability. Homeowner’s insurance, often $35 per month for every $100,000 of home value, is another cost to consider.

Loan Term

The loan term—15 or 30 years—also affects affordability. A shorter term means higher monthly payments but less interest paid over time.

 

Improving Your Affordability

  1. Boost Your Credit Score: Pay down existing debts and ensure on-time payments.

  2. Save for a Larger Down Payment: This reduces your loan amount and overall costs.

  3. Lower Your Debt-to-Income Ratio: Pay off car loans or credit card debt before applying for a mortgage.

  4. Explore Assistance Programs: First-time homebuyers can benefit from down payment assistance or favorable loan terms.

 

Conclusion

Understanding how much home you can afford involves analyzing your income, debts, and financial goals. By following the 28/36 rule, using affordability calculators, and considering all costs—from down payments to property taxes—you can set yourself up for a successful home purchase. Start your journey today by assessing your finances and exploring our mortgage options that fit your budget. If you are ready to apply, call 402.441.3555, stop by one of our three locations, or complete an Online Mortgage Application today.



« Return to "Mortgage Loans"
Go to main navigation