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.

Tools & Resources

Explore our tools and smart tips.