How much house can you afford?
This home affordability calculator provides a simple answer to the question, “How much house can I afford?” But like any estimate, it’s based on some rounded numbers and rules of thumb.
For example, it’s generally assumed that your monthly mortgage payment (principal, interest, taxes and insurance) should be no more than 28% of your gross monthly income. This ensures you have enough money for other expenses. Also, your total monthly debt obligations (debt-to-income ratio) should be 45% or lower. Keep in mind that closing costs, including any additional taxes and fees, can add up. Contact a mortgage loan officer to learn more about these important pieces of the homebuying journey.
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Disclosures
Calculators are provided by Leadfusion. This calculator is being provided for educational purposes only. The results are estimates that are based on information you provided and may not reflect U.S. Bank product terms. The information cannot be used by U.S. Bank to determine a customer's eligibility for a specific product or service. All financial calculators are provided by the third-party Leadfusion and are not associated, controlled by or under the control of U.S. Bank, its affiliates or subsidiaries. U.S. Bank is not responsible for the content, results, or the accuracy of information.
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When lenders evaluate your mortgage application, they calculate your debt-to-income ratio. This is your monthly debt payments divided by your monthly gross income. Lenders look at this number to see how much additional debt you can take on.
According to the 29/41 rule of thumb, it’s best to keep your DTI within a range that’s defined by these two numbers. Here’s an example.
The first number, 29, represents your housing expense ratio. This is calculated by dividing your mortgage payment (principal, interest, real estate taxes, homeowners insurance and, if applicable, homeowners association dues and mortgage insurance) into your gross monthly income and converting it to a percentage.
It’s defined by the following formula:
Principal + Interest + Property Taxes + Insurance (Homeowners & Mortgage)
+ Homeowners Association Dues
_____________________________________________________________________________ × 100
Gross Monthly Income
The 41 represents your total DTI after all your other debts are added, including revolving debt (credit cards and other lines of credit) and installment debt – mortgage, car payment, student loans, etc.
That equation is as follows:
Installment Debt + Revolving Debt Payments
_________________________________________________ × 100
Gross Monthly Income
The 29/41 rule is important to know when thinking about your mortgage qualification because DTI helps lenders determine your ability to pay your mortgage. Although higher housing expense and DTI ratios are allowed under many loan types (including conventional, FHA, USDA and VA loans), the 29/41 rule provides a good starting point. You need to calculate how much house you can afford while maintaining a wide range of loan options.
Make sure your mortgage payment (principal, interest, taxes, insurance and homeowners association dues) is no more than 29% of your gross monthly income. Also make sure your total monthly debt (mortgage plus car loans, student debts, etc.) is no more than 41% of your total monthly income.
How To Determine Your DTI Ratio
Mortgage lenders consider DTI an important qualifying factor. The amount of debt you have is considered a very reliable predictor of the risk associated with the approval of any mortgage loan. Therefore, it’s important to know your numbers.
Let’s look at how DTI is calculated.
Step 1: Add Up All Of Your Monthly Debts
Your debt payments could include:
- Monthly rent or house payments
- Monthly child support payments or alimony
- Student loan payments
- Car payments
- Monthly credit card minimum payments
- Any other debts you might have
You don’t need to add in:
- Grocery bills
- Utility bills
- Taxes
- Any other bills that may vary month to month
Step 2: Divide Your Monthly Debts By Your Monthly Gross Income
Next, do a simple calculation. For example, let’s say your debts add up to $2,000 per month. If your monthly gross income (your before-tax income) is $6,000 per month, then your DTI ratio is 0.33, or 33%.