May 7, 2025

How Much Home Can I Afford?

 

Buying a home is one of the biggest financial decisions you’ll ever make. Before you start shopping for your dream house, it’s important to answer a critical question: How much home can I afford? Understanding your home affordability helps you set realistic expectations, create a budget, and avoid financial stress down the line.

Let’s walk through the factors that affect home affordability and how to calculate what you can truly afford in monthly mortgage payments.

Key Factors That Affect Home Affordability

You’ll need to gather the following financial information to calculate your monthly affordability:

•  Annual income: Include total household income if you’re buying with a partner
  
•  Down payment amount: The more you put down, the lower your loan amount and monthly payment (Tip: You can avoid private mortgage insurance by putting 20% down)
  
•  Current living expenses and obligations: Rent, mortgage, taxes, insurance, alimony, etc.
  
•  Budget: Review other monthly expenses and spending habits like groceries, transportation, subscriptions, and entertainment
  
•  Emergency savings: Create wiggle room for unforeseen costs, repairs, etc.
  
•  Outstanding debt: Student loans, car loans, existing mortgage, credit card debt and minimum payments, etc.

 

What Is A Debt-To-Income (DTI) Ratio?

Debt-to-income (DTI) ratio is a crucial metric lenders use to determine how much mortgage you can afford. Your income and debt will help determine your DTI ratio, which heavily influences a lender’s decision to approve or deny your loan. 

A combination of high debt and low income is considered a high DTI, while low debt and high income is a low DTI. Lenders will prefer a low DTI when choosing who to lend to because it signifies that the lendee will be more likely to make their loan payments on time.

• High DTI (more debt than income) = less favorable to lenders
• Low DTI (less debt, more income) = more favorable to lenders

Most lenders prefer a DTI under 36%, although some may accept higher depending on the loan type and other factors.

Once you’ve gathered all these details, it’s time to determine the monthly mortgage payment you can afford. 

As exciting as buying a home is, it’s one of the biggest commitments you'll ever make. Use BCU’s Home Affordability Calculator to assess your budget and lifestyle to determine whether it's the right choice for you. 

When you're ready to take the next step in your homebuying journey, the Credit Union can help guide you every step of the way — check out our homebuying tools and resources. 

 

 

Ready to experience the credit union difference? Become a member of BCU!