How Much Mortgage Can I Afford? | Mortgage Affordability

The majority of people’s largest personal investment is frequently buying real estate with a mortgage. Not simply how much a bank is ready to lend you, but also other factors, determine how much you can afford to borrow. You should assess your funds as well as your preferences and top priorities.

Here are all the factors you should think about when estimating how much mortgage you can afford.

What is a Mortgage?

A mortgage is a type of loan used to purchase or maintain real estate such as a home, land, or other building. The borrower agrees to pay the lender on a regular basis, typically in the form of a number of installments that are divided into principal and interest payments. The asset then serves as a guarantee for the loan.

Mortgage loans can be used to finance the purchase of a home or to take out a loan against the value of the one you already own. The typical length of a mortgage is 30 or 15 years.

How Much Mortgage Can I Afford?

Generally speaking, most potential homeowners are able to finance a home whose mortgage is between 2 and 2.5 times their annual gross income. According to this calculation, a person making $100,000 a year may only afford a mortgage between $200,000 and $250,000. However, this estimate should only be used as a general reference.

How Much Mortgage Can I Afford

Ultimately, there are a number of other things to take into account when choosing a house. First, it’s wise to learn how much your lender estimates you can afford.

If you intend to remain in the home for a considerable amount of time, you should secondly engage in some introspection to choose the kind of home you are willing to live in as well as the kinds of consumption you are prepared to give up—or keep—in order to do so.


  • The basic rule is that you can afford a mortgage that is 2 to 2.5 times your gross income.

  • The four components of a typical monthly mortgage payment are interest, taxes, principal, and insurance.

  • Your front-end ratio, which is typically not higher than 28%, is the portion of your yearly gross income that goes toward your mortgage payment.

  • Your back-end ratio, the portion of your yearly gross income that goes toward paying down your debts, should generally be at most 43.

Important: While historically real estate has been seen as a secure long-term investment, recessions and other catastrophes (such as the 2020 economic crisis) can put that belief to the test and cause prospective homeowners to reconsider.

How Do Lenders Calculate the Amounts of Mortgage Loans?

Your ability to buy a home (and the amount and conditions of the loan you will be granted) will always depend mostly on the following elements, while each mortgage lender retains its own criteria for affordability.

Assets, income, debt, and obligations are the main considerations for the mortgage lender when deciding whether a purchaser is affordable. Lenders are interested in information about applicants’ income levels, the pressures placed on them, and the likelihood that both would arise in the future—in other words, anything that might compromise their ability to receive repayment.

  • Gross Earnings
  • Debt-To-Income Ratio 
  • Mortgage-To-Income Ratio
  • Credit Score

Gross Earnings

This is the prospective homebuyer’s earnings before deducting taxes and other expenses. This is typically considered to be your base pay plus any bonuses, and it can also include income from side jobs, self-employment, Social Security benefits, disability payments, alimony, and child support.

Debt-To-Income Ratio 

Debt-to-income ratio (DTI) determines what proportion of your gross income must go toward paying off your obligations. Credit card bills, child support obligations, and other unpaid loans are among the debts (auto, student, etc.).

In other words, if your monthly debt payment is $2,000 and your monthly income is $4,000, your debt-to-income ratio is 50%, meaning that 50% of your monthly income is going toward paying down your debt.

You won’t be able to purchase your ideal home with a debt-to-income ratio of 50%, though. A DTI of no more than 43% of your gross income is often advised by lenders.

Multiply your gross income by 0.43 and divide it by 12 to determine your highest monthly debt based on this ratio.

Mortgage-To-Income Ratio

The mortgage-to-income ratio, commonly known as the front-end ratio, is highly dependent on gross income. This ratio is the portion of your annual gross income that can be used to cover your mortgage payment each month. Principal, interest, taxes, and insurance (often referred to as PITI) make up the four components of your monthly mortgage payment (both property insurance and private mortgage insurance, if required by your mortgage).

The front-end ratio calculated using your PITI should not be higher than 28% of your gross income, according to a good rule of thumb. However, many lenders permit borrowers to exceed 30%, and some even permit borrowers to exceed 40%.

Credit Score

Your debt is the other half of the affordability coin, with income being the one side. To assess a potential house buyer’s level of risk, mortgage lenders have created a formula. The calculation varies, but it typically takes the applicant’s credit score into account.

APRs, or annual percentage rates, are used to describe interest rates, and applicants with lower credit scores can anticipate paying higher APRs. Keep an eye on your credit reports if you intend to purchase a property soon. You don’t want to lose out on your dream home because of errors that were not your fault because it will take time to have them resolved.

TIP: To determine how much mortgage debt one should assume, one can utilize the 28%/36% rule as a metric. This rule states that housing costs should not exceed 28% of one’s gross monthly income and total debt payments should not exceed 36%.

How to Calculate the Mortgage Down Payment Amount

The amount of the down payment is what the buyer can afford to put down in cash or other liquid assets to purchase the home. Most lenders allow purchasers to buy a home with down payments that are much lower than the standard 20% required by lenders.  Naturally, the more money you have to put down, the less financing you’ll need, and the better you’ll look to the bank.

How to Calculate the Mortgage Down Payment Amount

For instance, if a potential buyer can afford to put down 10% on a $100,000 house, the down payment would be $10,000, which would require the homeowner to finance $90,000.

TIP: In order to avoid paying private mortgage insurance, homebuyers must come up with a 20% down payment.

Extra Mortgage Costs

Although the mortgage is unquestionably the largest financial burden of homeownership, there are other extra costs, some of which remain even after the mortgage is paid off. The following considerations are important for smart buyers to bear in mind:

  • Property Taxes
  • Home Insurance
  • Maintenance
  • Amenities

Property Taxes

A homebuyer’s budget should include a realistic estimate of how much they would owe in property taxes if they bought a home. Your property tax is determined by the township, city, or county depending on the size of your house and land as well as other factors, such as the market and the real estate conditions in the area.

The effective average property tax rate nationally is 1.1% of the home’s assessed value, according to the Tax Foundation. State-by-state, this sum varies, with some having lower taxes on the property than others. For instance, Oklahoma’s is 0.88% whereas New York’s average is 1.4%. Even once your mortgage is completely paid off, you will still be responsible for paying property taxes.

Home Insurance

Every homeowner requires home insurance to safeguard their assets from theft and other misdeeds as well as natural and man-made calamities like tornadoes. You must calculate the cost of the required insurance if you are buying a home.

The majority of mortgage lenders won’t approve your application if you don’t have home insurance that covers the full cost of the property. In order for your mortgage lender to approve you, you might even need to provide proof of home insurance.

The average rate for the most popular kind of home insurance in the United States was over $1,200 in 2018, according to the most recent information available as of early 2021. However, the cost varies according to the sort of insurance you require and the state in which you live.


Even if you build a brand-new house, neither it nor those pricey major appliances, such as stoves, dishwashers, and refrigerators, will remain brand-new indefinitely. The roof, driveway, furnace,  carpet, and even wall paint all fall under this category. When you take on your first mortgage payment, if you are house poor, you can run into trouble if your financial condition hasn’t changed by the time your home needs major repairs.


It costs money to use amenities including cable television, telephone, heat, insurance, energy, water, sewage, and garbage removal. Both the front-end ratio and the back-end ratio do not take into account these costs. Nevertheless, most homeowners cannot escape them.

Also keep in mind that larger homes require more heating and cooling to maintain the larger spaces, which results in greater utility costs. When they view a large, lovely home, many people fail to notice that.

Advice For Buying a Home

There are certain wise steps you can take to help ensure that you can maintain your property and afford it in the long run. First, put aside an additional financial reserve to your down payment and keep it on hand in case you lose your job or become unable to work. You can keep your home while searching for new employment if you have enough emergency savings to cover several months’ worth of mortgage payments.

Advice For Buying a Home

Additionally, you want to look for strategies to reduce your mortgage payments. A 30-year mortgage has lower monthly payments than a 15-year mortgage, which may make it simpler to afford month-to-month even though the 15-year mortgage will cost you less overall. 

Additionally, specific lending programs—like VA loans for veterans and USDA loans for rural properties—offer options with lower or no down payments.

Personal Factors to Consider when Buying a Home

You can be told by a lender that you can finance a large property, but can you? Keep in mind that the lender’s requirements focus mostly on your gross income and other debts. The issue with gross income is that it ignores deductions for taxes, FICA, and health insurance premiums while including in up to 30% of your pay.

If you have children, take into account your pre-tax retirement contributions as well as your college savings. Even if you receive a refund on your tax return, it would not benefit you now, and how much will you receive?

Because of this, some money gurus believe it’s more practical to think in terms of your net income, also known as take-home pay, and that you shouldn’t pay more than 25% of your net income toward your mortgage. Otherwise, even if you can afford your monthly mortgage payment, you risk being “home poor.”

You might find that the expenditures of purchasing and keeping your home consume such a sizable portion of your income—far and above the nominal front-end ratio—that you won’t have enough money left over to pay for other discretionary spending, unpaid debts, savings for retirement, or even a rainy day. Being home-poor or not is mostly a matter of personal preference; being approved for a mortgage does not guarantee that you can make the payments.

Frequently Asked Questions [FAQs]

What mortgage can I afford with 100K salary?

If you follow the 28% rule, as most experts advise, a 100K salary allows you to a $350,000 to $500,000 home. This would entail a monthly mortgage payment of about $2,300 and a 5% to 20% down payment on your home.

What Does Being House Poor Mean?

A person who is “house poor” has much of their money tied to their home and spends a large portion of their income paying off their mortgage and other debt-related obligations. An illustration would be if you had $100,000 in savings and utilized it all to finance a $500,000 house with a $2,500 monthly mortgage payment while your net income is $3,000 per month.
A situation like this may appear to be prosperous economically, but if things go south, it might easily lead to foreclosure.

How Much of a Mortgage Can I Afford Based on My Salary?

There is usually a general guideline for how much mortgage you can afford based on your income. According to some experts, for instance, the amount you should spend on a mortgage shouldn’t be more than 2x to 2.5x your gross annual income (so if you make $60,000 a year, your mortgage should be no larger than $150,000). According to some guidelines, you shouldn’t commit more than 28–29% of your gross monthly salary to housing.

Can you afford a house 3 times your salary?

Finding a property that is between three and five times your household’s yearly income is a decent rule of thumb for many purchasers. If you have no other debt, you could be able to look at the top of that range; but, if you have a lot of debt, you might want to look at the lower half of that range.

How much house can I afford 80k salary?

Consequently, if your annual income is $80,000, you should search for properties between $240,000 and $320,000. The range can be further restricted by calculating an acceptable monthly mortgage payment. To achieve this, multiply your monthly after-tax income by the sum of all your current loan payments.

How much house can 200K salary afford?

Having said that, if you earn $200,000 annually, you can probably buy a house worth $400,000 to $500,000.

How much income do you need to buy a $500000 house?

The maximum cost of your home shouldn’t be more than 2.5 to 3 times your entire annual salary, according to a fair rule of thumb. This suggests that your minimum income should be between $165K and $200K if you wanted to buy a $500K home or be eligible for a $500K mortgage.

Can I afford a house 10x my salary?

As a general rule, try to purchase a property that costs roughly 2.5 times your gross annual income. You might need to lower your goals if you have large credit card debt, other debts like alimony, expensive hobbies, or other financial commitments.

The Conclusion

The biggest personal expense that the majority of people will ever incur is the cost of a home. Do the math first before taking on such a sizable debt. Consider your circumstances and your way of life after you’ve run the numbers—not just now, but also over the course of the following decade or two.

Before you buy your new house, think about how much it will cost you to buy it as well as how future mortgage payments would affect your life and budget. Get loan estimates from a variety of lenders for the style of home you intend to purchase after that learn about the actual discounts available.

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