How much house can you afford?

By Robin Wetherbee

January 2016

The simple rule of thumb is to spend less than three times your gross income on a home.

I’m here to show you the guts behind that little guestimate/guideline and give you some insight as to how your lender may determine whether it agrees with how much house you think you can afford. I’m going old school with pencil, paper and a wonky little calculator app. Follow along with your own calculations, if you wish, to answer the question, how much house can you afford?

Lenders consider lots of factors when they evaluate a loan application, among them, their borrowers’ Total Debt-to-Income Ratio (DTI). This magic number compares the total amount of debt you’re obligated to pay each month with your gross monthly income (income before taxes and other deductions).

Lenders may allow up to 43% for a Total DTI Ratio. But there’s no need to be an overachiever and hit that maximum. Do yourself a favor and try to keep your Total DTI Ratio low. Consider a conservative cap of 38%.

The lower you keep this number, the more financial freedom you’ll have with regard to saving and your living expenses. And don’t forget you may need to furnish your new home or buy a lawn mower or a new toilet.

What counts toward Total Monthly Debt?

Total Monthly Debt includes your Proposed Monthly Housing Expense and the rest of your debt.

We’ll circle back to Proposed Monthly Housing Expense; as for All Other Monthly Debt, include the following monthly payments in your tally:

  • Student loans
  • Car loans or leases
  • Bank credit cards, like VISA and MasterCard
  • Department store credit cards, like Target, Best Buy and Macy’s
  • Alimony or child support
  • Other housing expense, a second home, for example

Your lender may have additional requirements with regard to what it considers as monthly debt.

Don’t include your current rent payment or monthly living expenses like groceries, utilities, cell, cable, entertainment or gym membership. You’ll need to consider your living expenses in your total monthly budget but your lender will not use them to calculate your Debt-to-Income Ratio.

Here’s an example:

Let’s say your gross annual income is $50,000; your gross monthly income, $4,166. Based on that figure, your All-Other-Monthly-Debt-to-Income Ratio would look like this:

My, what a lovely, manageable ratio.

Circling back to Total DTI Ratio and proposed monthly housing expense

So if your Total All-Other-Monthly-Debt-to-Income Ratio is 15% and you set a cap of 38% for your Total DTI Ratio, you should be able to comfortably afford spending 23% of your gross monthly income toward your monthly housing expense.

Here’s how that works out, based on our example:

That $958 has to cover:

  • Principal and interest (P & I)
  • Real estate taxes
  • Hazard insurance (also called homeowners insurance), flood insurance and government (FHA) or private mortgage insurance
  • Miscellaneous expenses, such as secondary financing, homeowners’ association dues, cooperative corporation fee (net of individual utility charge), special assessments and ground rent


Back to the rule of thumb

The thumb tells us that with a gross income of $50,000, you could afford a house valued at $150,000 or less. Depending on local home values and real estate tax rates, miscellaneous expenses and your down payment amount, $958 a month may be plenty or it could be nowhere near enough. Let’s see where that amount will get you based on national medians and averages:

In the examples below:
  • The loan is a 30-year fixed-rate mortgage with an interest rate of 4% 
  • P & I is based on calculations from 
  • Real estate tax (RE Tax) estimate is from
  • Homeowners insurance (HOI) estimate is from 
  • Private monthly mortgage insurance (Private MI) costs from MGIC are based on a 720 credit score and standard Fannie Mae MI coverage levels (35% for 97% LTV, 30% for 95% LTV, 25% for 90% LTV and 12% for 85% LTV)

Private mortgage insurance is most often paid monthly and by the borrower — that would be you — and is included in the total monthly mortgage payment (Total PITI).

Something to note is that private mortgage insurance is cancellable. In our examples, depending on the down payment amount and an annual home price appreciation rate of 3%, it could be cancelled between months 33 and 61, reducing your mortgage payment by the monthly MI amount — a nice little bump in disposable income!

So how much house can you afford? (The long version...)

(Yes, the end of this post is finally here — thanks for sticking with me.) Our examples show that if you have a gross income of $50,000 and a Proposed Monthly Housing Expense of $958, financing a $150,000 home with the right down payment and financing combination is very do-able.

 Of course, the greater the down payment is, the lower the mortgage payment. If you’re fortunate enough to have funds for a 20% down payment, you could comfortably afford a $745 monthly mortgage payment. The $213 cushion gives you some options, including increasing your home price budget. If you’re feeling particularly creative, you may consider financing with mortgage insurance, putting less down and using some of the funds for fixing up and furnishing your new home or for investments.
 If you’re far away from a 20% down payment, our example provides good hope. You can stay at or well within budget with a much lower down payment. Less money to save for your down payment can shorten your path to homeownership.
 As you go through your own example, you may want to play with bumping up your Proposed Monthly Housing Expense Ratio cap in small increments or reducing your loan amount to see where that gets you. You may also want to check on actual real estate taxes and homeowners insurance costs in your area.
 Your calculations could reveal that you may not quite be ready to purchase a house. And that’s okay, because now you have the opportunity to assess and evaluate your monthly debt and living expenses. Maybe pay down some of your credit cards. Maybe trim a bit off your entertainment budget. It’s all in preparation for being an attractive candidate for a mortgage — but more important, to be able to buy a home of your own.

The short answer

If you’ve read all this, you still feel confused (welcome to the club), and you just want a quick rough answer – try our home affordability calculator. Rather than thinking about the price of a home in relation to your salary or savings, just enter a number you think you could live with for a monthly mortgage payment. We’ll make a lot of complicated assumptions and give you the price of a home you might be able to afford with a 10% down payment.


  • There are a bevvy of calculators available that can provide you an answer to the question, how much house can you afford?, but they generally provide a maximum amount — one that may put a strain on your savings goals or your day-to-day living expenses
  • I made up the term “All-Other-Monthly-Debt-to-Income Ratio”; you will not hear these words coming from your loan officer’s mouth
  • I rounded numbers to the nearest whole number
Nancy Valle

Important information


Important information

Dilcia Rosa Mendez

Exelente clase que imformacion mas importante

Ryan Langdon

Is informative

Beverly Maines

Thank you for the info

Ralph Littlejohn

very informative, thank you

Thanh Nguyen

It's so helpful. Thank you.

samantha latiolais

This information was very helpful

Winser saint Hubert

I will good taking care of my house

Mike Howie

Good course

Justin Salisbury


Justin Salisbury

It was helpful

Justin Salisbury


Antonia I Rosario

Quiero progresar más estar serca de mi familia

Diane Tumbs

I buy a house with a front and back yard an to call me own home and tied that rent

Oscar perez


Rebecca Connor

Thanks for the extra information.

Amanda Rodriguez

Good tips on calculation costs.

Christy Townes-Skinner

Thanks for the help with the calculations.


thank for the information

Beatriz Valles

I am buying a home. But it's nice to know. Ty

Elizabeth Rubio

It was very useful

Marisol DeLeon

Thank You so much very helpful with the calculations os Affording a home


Great info

Joevannie Quinones

Great information

Kenneth Stingley

ALL- Other-Monthly-Debt-to-Income Ratio.. That's priceless information. Very helpful.

Francisco centeno

Thank for the orientation I guess I'm about right now asking the deciding of buying an apartment .I will be able to keep up with the payment without a problem

Maria Ayala

Very educational , definetely love the lessons..

Veronica higbee

Not first home but can’t afford what I have. And I have very bad loan modification from 5th 3rd bank.

Michael Nero

This was educational.

John Gaines

All this is interesting to learn about while I'm buying a house!!

Omar Zelaya

not cheap but it would have privacy

Brandy glass

I am buying a home

Argenis Ferrer

Excellent information to be educated

Steven Herrick

Vary helpful information

Brandon Lethbridge

Thank you for the information. It helped a lot.


Very helpful information

Matricia Battle

This information helped me to better understand how a home loan is calculated and where I stand in the process. Thanks

Carmelo negron

Great insight

Tommeco jones

It help me see how I could afford a home!

Erwin Peralta

Thank You for the information is important to know.

Erwin Peralta

Thank You so much Wendy and Lauren they both help me during this process since is my first time buyer. Thank You for the information Wendy is very helpful and is good to know what I'm going to get into.

Kenneth Rivera

Good information to know.

Vickie Akers

Breaks down terminology to help you understand

Laurenc Sanchez


Rosemarii Hunt

Good to know

Meng lor

Good information for a first time buyer.

Otis mcclendon

Great information

Julian Orozco

Thank you for the inportant information. Good to know

Aneisa Mata

Good information



Gregory Redwell

Very affordable

Gregory Redwell

Yes it is good and affordable


Great information


Is great information about buying a house

Alvaro Hurtado

It was nice to know how you guys figure that stuff out

Kaddour Yamani

Good to know

abdelkrim raji

thank you

Darwin Berdecia

It's a great orientation before buying a home.


Thank you for this information it was helpful so I can know how to budget my income in the near future I like how it should me how to budget and keep my income stable.

Norris H Matthews

Very mindful about your finances

Alice and Robert Watkins

This was very helpful in my straw in buying a house. Still trying to decide if I want new builtor ready home

Roel Velasquez

The information that I get here is so interested for my future, and by the information how I can get a own home, what kind of interest I going to get, my score of my credit,

Biniam Gebreslassie

Thanks for all the important info.

Monica Gonzalez-Cortes

Good to know

Sohan tandukar

Thank you for all the valuable information, I am able to gain a lots of information about home. Specially, about insurance and it’s benifits.

Tiffany jones

It was helpful and helped me understand alot

Musa Boakai

So right now am am only able to afford one house due to debt to income ratio.

Ariel Delgado

Thanks for the all important information about the homebuyer and how are working with the insurance etc

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Robin Wetherbee has been writing for MGIC about mortgage insurance and homeownership since 1989. She and her handsome husband reside in Milwaukee’s Bay View neighborhood. They share their freshly empty nest, which she calls her “Miracle on 34th Street” house (if you’ve seen the 1947 movie, you’ll know exactly what she means) with their big old black cat, Max Rayfield Gilhooly.
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