To determine how much house can be afforded, the main factors to consider are household income, monthly debts, down payment savings, current mortgage interest rates, and additional homeownership costs like property taxes and insurance. The broadly accepted 28/36 rule suggests that no more than 28% of gross monthly income should go toward housing costs, and total debts should not exceed 36% of gross income. Some lenders use a 36/43 rule, where monthly mortgage costs should be no more than 36% of gross monthly income and total debts no more than 43%.
For example, if someone earns $5,500 a month, their housing costs should not exceed $1,540 (5,500 x 0.28) and total debts should not exceed $1,980 (5,500 x 0.36) according to the 28/36 rule. Other expenses like childcare should be considered in the total debt ratio when calculating affordability.
Various online calculators ask for monthly gross income, monthly debts, and available down payment to estimate an affordable home price and monthly mortgage costs. These calculators also factor in local property taxes, insurance, and loan interest rates to give a more precise affordability range.
In summary, affordability depends on income, debts, down payment amount, and loan conditions. Using the 28/36 or 36/43 rules as guidelines, calculating monthly housing payments as a proportion of income and reviewing existing debts helps estimate how much house a person can afford. For more precise numbers, it's recommended to use an online mortgage affordability calculator where detailed inputs can be entered.
