Use our home affordability calculator to figure out how much you may be able to afford for a new home. Just fill out the fields below and the calculator will crunch the numbers to estimate a mortgage that fits within your budget and lifestyle. See below for further details on how we estimate the mortgage you can afford and what factors mortgage lenders consider.
How much house can you qualify for?
Traditionally, mortgage lenders have used something known as the 28/36 rule to determine how much of a mortgage you can qualify for. This refers to two income ratios that provide guidelines for your maximum monthly payment.
Front-end ratio-The "28" is known as the front-end ratio and says that your mortgage payment, including taxes and insurance, shouldn't exceed 28% of your pre-tax income.
Back-end ratio-The "36" is called the back-end ratio, which means your entire debt load, including your mortgage payment, car payment, credit cards, student loans, and other monthly payments shouldn't exceed 36% of your pre-tax income.
Some lenders will stretch these limits even further. For example, if your loan is a qualifying mortgage under Fannie Mae's underwriting standards, and you meet a few other requirements, you can qualify for a debt-to-income ratio of up to 45%. In other words, if your monthly paychecks are $5,000 before taxes, you could qualify for a mortgage as long as it doesn't cause your monthly debt load to exceed $2,250. No doubt this is on the high end of the spectrum for what you can afford with little cushion for unexpected events.
Credit history – Lenders will generally review your FICO Score to better understand your risk as a borrower and the interest rate offered. Homeowners will need a minimum FICO Score of 580 to qualify for an FHA, low down-payment mortgage. Potential homeowners with larger down payments will need a FICO Score of 620 to 660, depending upon lenders. That's not to say anyone with a lower score won't qualify, but there's no hard-and-fast rule on credit scores and qualifying for a mortgage.
How we estimate how much house you can afford
We license calculators from CalcXML, who estimates how much house you can afford based on a few important items, including income, amount of money saved for a down payment, and monthly obligations (such as credit card or student loan payments). The actual amount of home you can afford may vary depending upon spending habits, cost of living in a specific region, and your overall financial health. Some homeowners will prefer to spend less than they can afford, in favor of saving for a rainy day or investing the money elsewhere. As born-and-bred stock investors, we advocate for living within your means and using extra funds to invest in your future.
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Calculator tools included on this page are provided to The Motley Fool and managed by CalcXML. The Motley Fool makes no representations as to the accuracy of the information provided.