Couple embracing surrounded by packing boxes

How Much House Can I Afford?

Updated January 1, 1 . AmFam Team

The rule of thumb is that you can afford to pay 28% of your income toward housing. But what does that mean? And is it a good estimate for you?

If you’re wondering how much house you can afford, then you should give yourself a pat on the back. Evaluating your finances and taking steps to figure out how much your housing budget should be is a smart way to begin shopping for a home with preparation and peace of mind.

So let’s look at how much home you can afford and then discuss how much you should pay toward housing.

How Much Home Can You Afford

To estimate what size mortgage is right for you, we’ll look at it from a lender’s perspective.

The 28/36% rule. Mortgage lenders use this guideline to determine how much home you can afford. The first part means that most households can afford to spend up to 28% of their pre-tax income on a mortgage, homeowners insurance and taxes.

The second half looks at all your debt, your entire debt load, including housing expenses, should not exceed 36% of your pre-tax income. This means if you have a lot of credit card debt, school loan payments and other debts you should spend less on housing.

Down payment. If you’ve saved up a large down payment, nice work. This means you get to knock that amount off the asking price, so you won’t have to borrow as much. And that can make a more expensive home within reach.

Credit history and score. Your lenders will look closely at your history with credit and bills. Credit scores also affect which loan you qualify for, how much down payment you’ll need and your interest rate. In general, the higher your score, the more you’ll be able to afford because you’ll qualify for a better loan with lower interest.

Other Factors to Consider in Home Affordability

We know that what you can do and what you should do aren’t always the same. This also applies to buying a home — what you can afford might not be what you should pay toward housing. Here are some other considerations that could affect your home purchase.

Location. Where you live can affect how much home you can afford. If you happen to be in an area with a high cost of living and high property taxes, then you’ll have more monthly expenses, so your budget for housing will shrink.

Your debt plans. While lenders will look at your debt, they don’t look at how you plan on paying it. If you’re aggressive with debt and like to pay large amounts to get rid of it quickly, you’ll want to leave some flexibility in your budget for emergencies and unplanned expenses.

Your lifestyle. People who make their home the center of their lives can probably afford to funnel a little more money into their home purchase. On the other hand, people who enjoy travel, entertainment and dining out would benefit from spending less on housing.

Your other goals. Your future dreams can easily affect how much you can afford to spend on housing today so you can achieve those goals in the future. Be sure to include long-term planning as you develop your budget.

When you’ve found the right price range you can finally begin home shopping! Enjoy the experience and have confidence that your planning and homework will help you will find the perfect home for your budget and your lifestyle.

When you find your new home, contact your American Family Insurance agent (Opens in a new tab)to get the ball rolling on your homeowners insurance. Your mortgage lender will typically want to confirm that you’ve made arrangements for insurance before your loan is finalized.

Related Articles

Related article test
  • Woman sitting at table writing a home inventory for homeowners insurance.
    Woman sitting at table writing a home inventory for homeowners insurance.
    9 Steps to Create a Home Inventory for Insurance Claims

    Your home is more than a roof over your head. It’s where your dreams grow, your family thrives and memories are made. But the possessions you keep inside are important, too.

    Whether you’re renting an apartment or own your home, you’ve most likely got an insurance policy designed to protect your dwelling and the things inside. Should the unthinkable happen and you have to use that insurance policy, it’s important to have a plan in place. And a home inventory list is a great way to get started!

    We’ll walk you through how to create a home inventory so — in the event of the unexpected — you’ll be more prepared and have a streamlined recovery.

    What Is a Home Inventory?

    Quite simply, a home inventory is a complete list of all the items, especially valuables, in and around your home. The best home inventories include photos, descriptions and dollar values of each of your belongings. The more detail, the better! It’ll help you provide a comprehensive list to your agent of items lost in the event your home is damaged or destroyed, allowing you to get the most out of your coverage.

    When your describing the items in your list, remember that the more information, the better. Here’s a quick reference list of the type of information you should include in your home inventory list:

    • An in-depth description of the items. For example, rather than writing down “diamond ring,” be more descriptive, such as: “an emerald cut diamond ring, with white gold shank, accent stones and initials inscribed below the bridge.”
    • Make, model, and/or serial number of the items.
    • Date of purchase, receipts and photos.
    • Estimated replacement cost if you bought it today. Do note that the value of the items might be different today than it was when you first bought them. This is especially true with jewelry, and other valuables.
    • Appraisals at time of purchase. Especially if your items were appraised for insurance purposes.

    Why Do I Need a Home Inventory?

    Whether you’re a homeowner or a renter, everyone can benefit from a home inventory!

    If you ever have to make a claim, a home inventory is a great asset to have, especially after stressful events like theft, storm damage or a fire (take a look at how one renter used their home inventory after facing an apartment fire).

    When you make a claim, you typically submit information on everything that was lost — which can be difficult to do off the top of your head for all your possessions. Remembering to replace your TV or computer are no-brainers, but when it comes to remembering each piece of jewelry in your jewelry box, things tend to get overlooked. Having a personal property inventory will help, along with knowing how to properly insure your jewelry.

    When you have your home inventory checklist, you know exactly what needs to be replaced, and you’ll have peace of mind knowing your entire household is protected.

  • A row of houses in a neighborhood with storm clouds that will bring strong rain and roof leaks behind it.
    A row of houses in a neighborhood with storm clouds that will bring strong rain and roof leaks behind it.
    Reasons Why a Roof Leaks

    You’re admiring the rain from the comfort of your home when you notice a sound — the unmistakable drip of water dropping onto your floor. The first and hardest step is figuring out why your roof is leaking. And with these tips, you’ll find the culprit in no time!

    Here’s Why Your Roof Is Leaking

    The list of reasons why your roof is leaking may seem long, but don’t worry — when it comes to finding the leak and fixing it, the finding is the hardest part. And the good thing about these problems? They can all be fixed. Check out the list and see what’s troubling your roof:

    Your roof is old

    Roofs don’t last forever. Protecting your home and everything inside it from the elements comes with a cost. And with all that rain, snow, ice, wind and even sunlight wearing down your roof, it becomes more susceptible to leaks. Every roof will eventually need to be replaced, so learn more about how long your roof should last based on what it’s made of.

  • A home with a wet roof after a storm.
    A home with a wet roof after a storm.
    How to Check Your Roof for Storm Damage

    There’s no good time to find out your roof needs repair — but you may be able to mitigate that pain by routinely checking your roof for damage after severe weather. Waiting for a leak or damage to present itself gives the problem time to grow and worsen.

    And sometimes, you’ll be faced with expensive roof and interior damage repairs if you’re not diligent. By being proactive and checking your roof for damage after severe weather hits can help your roof — and your savings — stay healthy.