Becoming a homeowner is a major milestone—one that can bring stability, the chance to build equity, and a place to truly call your own. But before you begin browsing listings, it’s essential to understand what you can realistically afford based on your income, debt, and long-term financial goals.
Many first-time buyers make the mistake of shopping for homes before understanding their budget—leading to disappointment or even financial strain later. To avoid this, it’s important to take a detailed look at your financial picture.
Start With a Key Question: Are You Ready to Buy?
Before diving into numbers, ask yourself whether buying a home makes sense for your current situation. If you’re unsure, use a rent vs. buy calculator to weigh the financial pros and cons of purchasing a home versus continuing to rent.
If the numbers—and your life circumstances—support homeownership, the next step is determining how much home you can comfortably afford.
General Rule of Thumb
A common rule many lenders use is the 28/36 rule:
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28% or less of your gross monthly income should go toward your housing expenses (mortgage, taxes, insurance, HOA fees).
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36% or less of your gross monthly income should go toward total debt obligations, including your mortgage, credit cards, student loans, auto loans, etc.
Example:
If you make $6,000 per month:
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Your total housing costs should ideally stay under $1,680 (28%)
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Your total debts, including housing, should stay under $2,160 (36%)
Factors That Affect Affordability
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Your Income
Your gross monthly income is the foundation for calculating your affordability range. Stable, verifiable income makes you a more attractive borrower and may help you qualify for better rates. -
Debt-to-Income Ratio (DTI)
This is a key factor lenders consider. A lower DTI means you have more available income and less existing debt, improving your ability to repay a mortgage. -
Down Payment Amount
The more money you can put down upfront, the more house you can afford—and the lower your monthly payments will be. A 20% down payment is ideal to avoid PMI, but many programs allow for much less. -
Credit Score
Your credit score affects the interest rate you’ll receive. A higher credit score can qualify you for better loan terms and increase your buying power. -
Interest Rates
Even a small change in rates can significantly impact your monthly payment and overall affordability. Locking in a low rate can stretch your budget further. -
Loan Type
FHA, VA, conventional, and USDA loans all have different qualifications, down payment requirements, and limits that affect how much you can borrow.
Avoid Common Mistakes
“One big mistake that many buyers often make is not factoring the household’s current debt situation into the decision-making process,” says Shailendra Kumar, Director in Fidelity’s Financial Solutions team.
Other common pitfalls include:
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Only budgeting for the mortgage payment — and forgetting taxes, insurance, maintenance, and utilities.
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Overestimating future income — rather than basing affordability on current, stable earnings.
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Failing to get preapproved before house hunting — which can lead to wasting time on homes outside your budget.
Tools to Help
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Mortgage Affordability Calculator: Estimate how much you can borrow based on your income, debt, and desired monthly payment.
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Rent vs. Buy Calculator: See if homeownership is a better financial move than renting in your market.
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Preapproval Letter: This shows sellers you’re a serious, qualified buyer and helps define your budget range more precisely.
Final Thought
Affording a home isn’t just about qualifying for a loan—it’s about choosing a home that fits your lifestyle, goals, and long-term financial well-being. Be realistic, stay within your comfort zone, and work with a trusted lender or financial advisor to find the right balance.