How Much House Can I Afford?
If you are just getting started on your search to buy a house and are not ready to talk with a lender, here is some helpful information to figure out your home buying price range and how much home you can afford.
A Quick Trick I use is ~$600 in monthly expense per $100,000 of the purchase price.
Housing Ratio
The Housing Ratio is a relationship between your gross income and total housing cost. As a rule of thumb, your housing budget should be no more than 1/3 of your income or approximately 35%. So if you are making 10K per month, 3.5K is a reasonable housing budget. If you are pushing the expense ratio to 40% plus (the highest you can possibly stretch is 50% but I do not recommend) you will start to feel very stretched because you have to pay for other things than just the house cost such as food, car(s), health insurance, children education, clothes, vacations etc.
Costs of Owning a Home
Single Family Home Housing Expenses:
- Mortgage Payment (Cash Purchases will have no mortgage)
- Property Taxes
- Insurance
- Utilities
- Property Maintenance
If you are putting down less than 20% you may have Private Mortgage Insurance.
For Condominiums and Properties with a Home Owners Association there may be HOA dues.
Best Online House Affordability Calculators:
An online home affordability calculator is a great resource to quickly get an estimate of how much house you can afford:
Redfin:
https://www.redfin.com/how-much-house-can-i-afford
Smart Asset
https://smartasset.com/mortgage/how-much-house-can-i-afford
Quicken Loans
https://www.quickenloans.com/calculator-affordability
Better
https://better.com/how-much-home-can-i-afford
Chase Bank
https://www.chase.com/personal/mortgage/calculators-resources/affordability-calculator
Zillow
https://www.zillow.com/mortgage-calculator/house-affordability/
House Monthly Holding Cost:
Here is a single-family monthly cost pricing table. In the estimate, I assumed 20% downpayment at a 4% interest rate on a 30 year fixed loan, and the monthly cost includes mortgage payment, taxes, insurance, and utilities. If you are putting less than 20% down, then you will have an additional expense of Mortgage Insurance to factor in. Annual Income was estimated as 35% of the monthly cost. Most lenders will lend with a Debt to income ratio no higher than 45%, although if your debt to income ratio is this high you will pay a higher than the normal interest rate. These are estimates- talk with a lender for your exact mortgage payment estimate.
| Property Value | Annual Household Income | Monthly Cost |
|---|---|---|
| $300,000 | $58,000 | $1,699 |
| $350,000 | $66,000 | $1,946 |
| $400,000 | $75,000 | $2,193 |
| $450,000 | $84,000 | $2,440 |
| $500,000 | $92,000 | $2,687 |
| $600,000 | $112,000 | $3,284 |
| $700,000 | $130,000 | $3,772 |
| $800,000 | $146,000 | $4,263 |
| $900,000 | $163,000 | $4,754 |
| $1,000,000 | $180,000 | $5,243 |
| $1,200,000 | $220,000 | $6,333 |
| $1,400,000 | $250,000 | $7,321 |
| $1,600,000 | $284,000 | $8,309 |
| $1,800,000 | $320,000 | $9,299 |
| $2,000,000 | $350,000 | $10,287 |
| $2,500,000 | $440,000 | $12,860 |
| $3,000,000 | $525,000 | $15,332 |
| $4,000,000 | $700,000 | $20,376 |
| $5,000,000 | $875,000 | $25,520 |
| $10,000,000 | $1,750,000 | $50,442 |
Condo Monthly Holding Cost:
Condo’s are a little different than single-family homes. They have monthly Homeowner’s Association dues. The amount of the HOA dues vary by the size of the building, and the amenities it offers. Buildings with Valet and front doorman tend to have HOAs starting around $1,000 and going up into the thousands, whereas buildings with a simple fitness room and a heated pool are in the $400 to $500 range. The absolute lowest that HOA dues can go is $300 per month.
In the monthly cost estimate, I assumed a 20% downpayment at a 4% interest rate on a 30 year fixed loan, and the monthly cost includes mortgage payment, taxes, insurance and utilities and HOA dues. If you are putting less than 20% down, then you will need Mortgage Insurance, which will be an additional monthly cost. The Annual Income was estimated as 35% of the monthly cost- the most lenders will lend is 45%, although if your debt to income ratio is this high you will pay a higher than the normal interest rate. These are estimates, actual costs will be different.
| Property Value | Annual Household Income | Monthly Cost |
|---|---|---|
| $250,000 | $60,000 | $1,754 |
| $300,000 | $70,000 | $2,047 |
| $350,000 | $80,000 | $2,345 |
| $400,000 | $90,500 | $2,638 |
| $450,000 | $100,000 | $2,936 |
| $500,000 | $110,000 | $3,239 |
| $600,000 | $130,000 | $3,781 |
| $700,000 | $150,000 | $4,378 |
| $800,000 | $170,000 | $4,973 |
| $900,000 | $190,000 | $5,564 |
| $1,000,000 | $210,000 | $6,120 |
| $1,200,000 | $250,000 | $7,349 |
| $1,400,000 | $285,000 | $8,321 |
| $1,600,000 | $320,000 | $9,292 |
| $1,800,000 | $350,000 | $10,265 |
| $2,000,000 | $400,000 | $11,887 |
| $2,500,000 | $500,000 | $14,318 |