How Much House Can I Afford?

By Stacey Freed | Adapted for blog use with permission from HouseLogic.com

Buying your first home is one of life’s most exciting—and overwhelming—milestones. Scrolling through listings and imagining life in a new space is fun, but before you fall in love with that charming Cape Cod or spacious Colonial, it’s important to ask: “How much house can I actually afford?”

Start with the Basics: Rules of Thumb

When beginning your home search, you'll likely encounter affordability guidelines like the 28%-36% rule or the 43% debt-to-income (DTI) rule. These serve as starting points to estimate what you can comfortably afford based on your income and debt.

• 28% Rule: No more than 28% of your gross monthly income should go toward housing expenses.

• 36% Rule: Your total monthly debts—including your mortgage—should not exceed 36% of your gross income.

• 43% Rule: This is the maximum DTI ratio typically allowed for government-backed mortgages (FHA, VA, USDA, Fannie Mae, Freddie Mac).

For example, if you earn $4,000/month, 28% of that is $1,120. That’s a good benchmark for your maximum monthly mortgage payment—including principal, interest, taxes, and insurance.

Don’t Rely Only on Spreadsheets

Creating a DIY spreadsheet might help you get a rough idea, but experts caution that it often doesn’t reflect reality. Many first-time buyers don’t account for closing costs, maintenance expenses, or loan qualification standards that lenders use. That’s why online house affordability calculators can be a more accurate starting point—many bank websites, including Chase, offer them for free.

These calculators usually include:

• Purchase price

• Down payment

• Estimated taxes & insurance

• Income

• Monthly debts

But remember: calculators are compasses, not crystal balls. They help point you in the right direction, but a lender will give you the clearest picture.

What Lenders Really Look At

In addition to income and DTI, lenders also evaluate:

• Credit score: Higher scores = better interest rates.

• Down payment: The more you put down, the better your loan terms.

• Cash reserves: You’ll need funds for closing costs, future repairs, and emergencies.

Also, consider other financial responsibilities: car payments, student loans, savings goals, entertainment, and more. A house shouldn't drain your lifestyle.

Don’t Forget the Hidden Costs

When budgeting, remember to factor in:

• Closing costs (3–5% of purchase price): Attorney fees, title insurance, recording fees, and more.

• Homeowners association (HOA) fees

• Maintenance and repairs: Especially important if you’re buying an older or inspected-waived home.

• Flood or hazard insurance: Especially in high-risk areas or changing climate zones.

Explore Home Buyer Assistance Programs

Lenders can also help you explore grants and special programs for first-time buyers. For example:

• Chase’s $5,000 Homebuyer Grant available in many minority census tracts

• Programs for self-employed individuals or physicians

• Local grants, like the City of Rochester’s Home Purchase Assistance Program

These options can make homeownership more accessible than you think.

Talk to a Loan Officer Early

Even before touring homes, connect with a trusted lender or loan officer. They can review your finances, explain what’s realistic, and provide a pre-approval letter—your golden ticket in competitive markets.

As Carly Napier, a Realtor® with Elysian Homes, puts it: “A good lender is more than a loan processor. They’re an advisor and a partner in your journey.”

Final Thought:
Buying a home is personal, and no two mortgages are the same. Start with an affordability calculator, then speak with professionals who can tailor the numbers to your financial life. With the right tools and guidance, you can confidently step into the housing market—and into your new front door.

Originally published by HouseLogic.com. Reprinted with permission from the National Association of Realtors®.
Author: Stacey Freed