Resources / Homebuyer Education / Before You Buy / How Much Can I Afford


Online mortgage calculators can be helpful, but it’s important to understand all the factors to plug into it so you can get the most accurate estimate possible. Read on to learn about specific considerations that can help you figure out what size mortgage you can afford, and then use the Mortgage Calculator to begin.
It should come as no surprise that income is an important factor in determining the home you can afford. Generally speaking, most prospective homeowners can afford to finance a property that costs between two and two and a half times their gross income. A good rule of thumb is that your mortgage payment should not exceed 28% of your gross income (salary before taxes), though many lenders let borrowers exceed 30%.
Debt-to-Income Ratio
Mortgage lenders use debt-to-income (DTI) ratios to arrive at a baseline judgment about your financial capacity to repay a loan. DTI measures your gross monthly household income and compares it to your debt. Debt in this case means both outstanding credit, student loans, etc., and your regular expenses, such as utilities, insurance, and other monthly expenses. For example, if your monthly gross income before taxes is $6,000 and your regular monthly payments total $3,000, your DTI is 50%, and most lenders will want you to lower that ratio.
Credit Scores
Credit certainly plays a big role in the homebuying process. Building good credit not only means qualifying for a loan, but can also mean lower interest rates, more purchasing power, and better financing options, helping you save money and build a financial future. Credit scoring is a system creditors use to help determine whether it’s a safe bet to give you a loan. Your credit score is determined using information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, whether you pay your bills by their due date, and total amount of outstanding debt. But remember, credit challenges don’t necessarily mean you can’t qualify for a home loan. Visit our Understanding Credit page to learn more.
Picking the Right Loan Type
There are many different types of mortgage loans out there, because everyone’s circumstances are different. It’s important to choose the one that’s right for you. Visit our Understanding Loan Types page, and then speak to your Mortgage Loan Originator for guidance.
Closing Costs
Closing costs include application, administration, and processing fees to be paid to the lender. Tax services fees may be due to the bank. A professional appraisal and inspection will be required, as will, most likely, a survey of the property. There are also title insurance and escrow fees, and of course the down payment. Closing costs will vary, but while it is helpful to have money saved for these upfront costs, it is not always necessary. There may be closing cost incentives or DPA closing cost assistance available in your area. Speak to your Mortgage Loan Originator for details.

Finally, don’t forget to include future savings goals – such as a college education or wedding for your child – in your budgeting. With the above in mind, you and your lender should be better equipped to decide on the mortgage payment you can afford.