A home purchase is a big commitment. To make sure you’re buying a home you can afford — both now and in the future — use a detailed home affordability calculator before beginning your search.
Our home affordability calculator will reveal how much you can comfortably afford (price-wise), as well as how much your monthly mortgage payment will be at certain price levels.
To get a more comprehensive feel for the price range you should be shopping in, you might try inputting a variety of home prices, such as the minimum or maximum amount of money you’re willing to spend on a home.
The calculator can also estimate how much you may pay in closing costs, as well as for private mortgage insurance (PMI) if required. To use the tool, you’ll need to have the following data on hand:
Financial experts generally recommend the 28/36 rule when it comes to buying a home. This means:
Here’s an example: Say you make $6,000 per month. According to the 28/36 rule, your mortgage payment should be no more than $1,680 (6,000 x 0.28). When combined with your other debts (credit cards, car loans, etc.), it should fall under $2,160 maximum.
Following this rule isn’t required, of course, but it will help ensure you’re buying a home you can comfortably afford, given your income and existing debts. It will also help ensure you’re not putting too much money into your home and leaving little for anything else (including emergencies).
Learn More: First-Time Homebuyer? Here’s How to Get the Money for Your Down Payment
COMPARE HOME LOAN RATES
Mortgage rates drop or rise daily, reacting to changing economic conditions, central bank policy decisions, and investor sentiment. The table shows current mortgage interest rates and APRs by loan term.
Product | Interest rate | APR | ||||
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General Information and Rate Disclosures: The listings that appear on this page are from companies that pay Credible compensation. This table does not include all companies or all available products. Displayed information is valid as of Nov 12, 2024 and assumes a customer with a 750 credit score borrowing a conventional loan for a single-family, primary residence, at or near zero discount points, and a 80% loan-to-home-value ratio. For products indicated as a jumbo (e.g. 30-year fixed jumbo rate), displayed information follows the same assumptions as a conventional loan but set at loan above the conforming limit. Here is an example of your payment based on a $400,000 loan amount, for each advertised loan term:
*Payments do not include amounts for taxes and insurance premiums, your actual payment obligation will be greater. The IP address of the customer accessing this page has been used to determine which U.S state should be used for pricing. In states where Credible does not have a license to operate, we are providing information about rates available in a nearby state. If you are viewing this page from an IP address in one of the states where Credible is not licensed, the rates displayed above are for consumers located in the neighbouring state shown below: IP state without license - Assumed location Missouri - Kansas Hawaii - California Rates, payments, and all information displayed are for informational purposes only and are subject to change without notice. This is not a credit decision or commitment to lend. Mortgage rates and terms you may qualify for depend on your individual financial circumstances. Payment Disclosures: All monthly payment amounts above assume on time monthly payments each month for the full duration of the loan term (e.g. 360 monthly payments for a 30 year loan). Displayed monthly payment amounts do not include amounts for property taxes and hazard insurance. Your actual monthly payment obligation will be higher. Amounts for borrower-paid mortgage insurance premiums are included in the monthly payment if (1) the loan amount is below the “conforming thresholds” set by Fannie Mae and Freddie Mac, and (2) the loan-to-home-value ratio is greater than 80%; mortgage insurance premiums are excluded from the monthly payment if either the loan amount is above the conforming thresholds or the loan-to-home-value ratio is less than or equal to 80%. Your actual payment obligation may be higher. “Conforming thresholds” depend on the county where the property is located. Fees Disclosures: The fee amounts shown above include estimates of loan costs and closing costs you may pay in connection with a mortgage transaction with the assumptions above. This includes fees the lender charges, including points and underwriting fees, and third party services the lender does not let you shop for such as a flood certification fee. It does not include title charges, recording costs, prepaids, initial escrow deposit, and other fees. ARM Disclosures: Variable rate products, such as ARMs, have interest rates that can change over the life of the loan. Changes in the interest rate will cause required payment amounts to change.” The displayed rate and payment will be in effect for the number of years in the product’s description (e.g. 5/1 ARM means the initial rate and payment are in effect for 5 years, 7/1 means they are in effect for 7 years, etc.), after which the rate and monthly payment will change every 12 months. Last updated on Nov 12, 2024. These rates are based on the assumptions shown here. Actual rates may vary. |
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Lenders look at home affordability, too. Using several factors, they’ll assess whether the home you’re buying is something you can afford given your income and, on top of this, whether you have the funds to continue making your payments should you lose your job or see reduced wages.
Here’s what lenders look at specifically when analyzing your application:
Your debt-to-income ratio — or DTI — is a ratio that reflects how much of your income your existing debts take up. The gold standard is 43%, meaning your debts (including your new mortgage payment) make up no more than 43% of your income.
Here’s an example: If you make $6,000 per month, and your car loan, student loans, credit cards, and new housing payments total $3,000/month, then you have a 50% DTI (6,000 / 3,000). You might have a hard time qualifying for a mortgage in this scenario.
Your credit score reflects your payment habits and how you manage debt. The higher the score, the lower your interest rate will usually be, and vice versa.
Lenders also look at your cash reserves, which include things like savings accounts, investment and retirement accounts, stocks, bonds, and more. These are liquid assets that can be used for your down payment and closing costs, as well as in an emergency to cover your mortgage payment.
The amount of cash reserves you’ll need varies by lender and loan program, but it’s usually calculated in months of mortgage payments (i.e., you need at least six months’ mortgage payments in the bank).
CALCULATORS
REFINANCE CALCULATORS
The lower your mortgage rate, the more you stand to save — both on your monthly payment and over your entire loan term.
For example, a 6.5% rate on a $300,000, 30-year loan means a payment of $1,896 per month and more than $382,633 in interest over the loan term. At a 6% rate, those numbers go down to $1,799 and $347,515.
To get the lowest mortgage rate, you should:
Reducing your DTI can help you get a lower rate.
To do this, there are three options:
Increasing your credit score can help, too.
This means:
Stow away a little more cash for a down payment. If you can put more money down, it lowers the risk for the lender which can positively impact your mortgage rate. Be sure to keep enough set aside for emergencies, though.
Once you’re ready to get started, use Credible to compare prequalified rates from our partner lenders. It takes only a few minutes and can help you save significantly in the long run.
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