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How much house can I afford? Here’s how to do the math.

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Two-thirds of US adults own a home, a milestone that is still viewed as a key part of the American Dream. Yet, in 2024, buying a house often feels out of reach.

The median price for a new home has jumped to $495,750, according to the National Association of Home Builders, pricing out 77% of US households. Meanwhile, the Census Bureau found that the median household income is $80,610. Given that gap, how do millions of first-time homebuyers reach that dream every year?

Despite the rising costs, experts say affordable housing options still exist, depending on where you look and how you plan.

“The really obvious factor that affects housing affordability is the home price itself,” Danielle Hale, Realtor.com’s chief economist, said. “But there are two other factors that are really important for housing affordability. One is the mortgage rate. The other major factor is, of course, incomes. Those are the three legs of the housing affordability stool.”

Mortgage rates have risen sharply since the pandemic, exacerbating the affordability crisis.

“Home prices escalated out of control during the pandemic, and mortgage rates followed suit, climbing higher than what we were used to in the previous decade,” noted Logan Mohtashami, lead analyst at HousingWire.

There is some relief in sight with a Federal Reserve interest rate cut on the horizon, which indirectly results in lower mortgage rates. It can take several weeks for the full impact to be felt by prospective homebuyers, however, so buyers shouldn’t race into the market out of fear of missing out.

Home affordability is a deeply personal decision. Determining how much house you can actually afford starts with some basic details to help you figure out what your most important up-front and monthly costs should reasonably be.

How to calculate affordability: The key numbers to know
One of the best ways to figure out how much house you can afford is with a housing affordability calculator.

For starters, you should have the following information ready:

Gross household income: your annual pre-tax income

Debt: monthly payments on loans and credit cards

Down payment: the portion of the home’s purchase price paid up-front

Loan term: the duration of the loan (e.g., 15, 20, or 30 years)

Interest rates: the cost of borrowing, which changes based on your credit score and market trends

Mortgage insurance: insurance protecting the lender if the borrower defaults

Property taxes: This varies by location and is based on the home’s assessed value.

Closing costs: the expenses tied to the home loan, title, and other costs


Lenders will want to know your debt-to-income ratio — the percentage of your monthly income that goes toward paying your debt — to assess whether you can handle a mortgage.

Hale advises following the “30% rule,” which suggests keeping housing costs within 30% of your gross income. However, she recommends adjusting this figure based on your personal financial situation.

Setting your down payment and loan term
After calculating your debt-to-income ratio, the next step is determining how much of a down payment you can afford.

Usually, the down payment is the largest up-front cost when buying a home. For example, if you have $10,000 saved, that’s your potential down payment, minus any emergency savings you set aside.

You’ll also need to factor in closing costs — a range of fees tied to the loan, title, and other costs — typically between 2% and 6% of the total purchase price.

Next, consider the loan term. Mortgage terms typically range from 15 to 30 years. Mohtashami stressed the importance of meeting with a mortgage officer early in the process: “Go to a bank and find out exactly what you qualify for. Mortgage rates and home prices fluctuate, but you need to get that clear number first.”

First-time homebuyer loan options
First-time buyers often have a variety of loan options, the most common of which are conventional loans and Federal Housing Administration (FHA) loans. “Conventional lending refers to anything backed by Fannie Mae or Freddie Mac, while FHA loans are backed by the Federal Housing Administration,” Hale explained.

FHA loans are better suited for buyers with lower credit scores and higher debt-to-income ratios because they allow for a lower down payment. Conventional loans, on the other hand, require a higher credit score and a down payment of at least 3%. If you choose a conventional loan without putting down 20%, you’ll also need to pay for private mortgage insurance (PMI), which will add to your monthly costs.

As an example, let’s assume a prospective homebuyer has a gross annual household income of $100,000, monthly debt payments of $500, and a $10,000 down payment. Plugging this data into the housing affordability calculator, what home price would be affordable?

Assuming a 30-year fixed-rate mortgage with a 5.795% interest rate, along with property taxes and PMI totaling $475 per month, the maximum affordable home price would be $329,728. This would result in a $3,000 monthly mortgage payment, leaving $3,500 each month for savings and other expenses.

If this payment stretches your monthly budget, you can lower the home price option to ease financial pressure.

Mohtashami reminds prospective buyers that many people start small: “Traditionally, you buy a smaller home, and as your family grows or your needs change, you move up or down in size.” This gradual approach is common for many homeowners.

Planning your homeownership journey
Owning a home may seem daunting, but with careful planning, it’s still possible. By understanding your financial standing, calculating what you can afford, and exploring different mortgage options, you can find a path to homeownership that works for you.

It's important to note that buying a home is a transaction, whereas owning a home is an ongoing budgeting consideration beyond the monthly mortgage. Save 1% of your home’s purchase price for repairs and maintenance because those costs are yours too.

A less predictable monthly expense is the impact of climate change and extreme weather conditions on buyers' ability to afford rising monthly insurance premiums or get coverage at all.

“It takes time and preparation to get into the housing market, so make those little steps to save and prepare now to get your finances in order so that your credit score is in a good place and you can qualify for some of the best mortgage terms when you go to buy a house,” Hale said. “Then, of course, anything you can do to improve your income, whether that's focusing on your career or taking on a side hustle, can also help you realize that dream of home ownership sooner rather than later.”