Mortgage Affordability Calculator | What Mortgage Can I Afford | U.S. Bank (2024)

FAQs

How do banks calculate how much mortgage you can afford? ›

Lenders usually require the PITI (principle, interest, taxes, and insurance), or your housing expenses, to be less than or equal to 25% to 28% of monthly gross income. Lenders call this the “front-end” ratio.

With a FHA loan, your debt-to-income (DTI) limits are typically based on a 31/43 rule of affordability. This means your monthly payments should be no more than 31% of your pre-tax income, and your monthly debts should be less than 43% of your pre-tax income.

The annual salary needed to afford a $400,000 home is about $127,000. Over the past few years, prospective homeowners have chased a moving target: homeownership. The median sales price of houses sold in the U.S. stood at $417,700 in the fourth quarter of 2023—down from a peak of $479,500 in Q4 2022.

Here's an example: If your gross annual income is $300,000, that's $25,000 per month. So with the 28/36 rule, you could aim for a monthly mortgage payment of about $7,000 — as long as your total debt (including car payment, credit cards, etc.) isn't more than $9,000 per month.

Ideally, you should make $208,000 or more a year to comfortably manage an $800,000 home purchase, based on the commonly used 28 percent rule (which states that you shouldn't spend more than 28 percent of your income on housing).

According to the 28/36 rule, you should spend no more than 28% of your gross monthly income on housing and no more than 36% on all debts. Housing costs can include: Your monthly mortgage payment. Homeowners Insurance. Private mortgage insurance.

On a salary of $36,000 per year, you can afford a house priced around $100,000-$110,000 with a monthly payment of just over $1,000. This assumes you have no other debts you're paying off, but also that you haven't been able to save much for a down payment.

The home price you can afford depends on your specific financial situation—your down payment, existing debts, and mortgage rate all play a role. Most experts recommend spending 25% to 36% of your gross monthly income on housing. For a $70,000 salary, that's a mortgage payment between roughly $1,450 and $2,100.

The most common rule for housing payments states that you shouldn't spend more than 28% of your gross income on your housing payment, and this should account for every element of your home loan (e.g., principal, interest, taxes, and insurance).

Meanwhile, an FHA loan requires a slightly higher down payment of $14,000, equivalent to 3.5 percent of the purchase price. Home buyers using either a VA loan or a USDA loan can qualify for a mortgage with zero down payment on a $400K home.

What income is needed for a $500,000 mortgage? ›

In today's climate, the income required to purchase a $500,000 home varies greatly based on personal finances, down payment amount, and interest rate. However, assuming a market rate of 7% and a 10% down payment, your household income would need to be about $128,000 to afford a $500,000 home.

Following the 28/36 rule, a guideline many mortgage lenders use to gauge how much you can afford, you'd likely need to earn at least $90,000 per year to afford a $350,000 house without spreading yourself too thin. Keep in mind that figure does not include upfront payments, like your down payment and closing costs.

You can generally afford a home for between $180,000 and $250,000 (perhaps nearly $300,000) on a $50K salary. But your specific home buying budget will depend on your credit score, debt-to-income ratio, and down payment size.

What credit score is needed to buy a $300K house? The required credit score to buy a $300K house typically ranges from 580 to 720 or higher, depending on the type of loan. For an FHA loan, the minimum credit score is usually around 580.

$300,000 Feels Like A Middle-Class Income

Psychologically, earning $300,000 feels OK because it puts the household in the top 10% of household income earners. But making $300,000 feels like a middle-class income due to how little cash flow is left. A household needs to earn $470,000+ to be in the top 1% in 2022-2023.

Most lenders base their home loan qualification on both your total monthly gross income and your monthly expenses. These monthly expenses include property taxes, PMI, association dues, insurance, and credit card payments.

Mortgage lenders decide how much you can borrow, for the most part. But that does not mean you have to take only what they give. What you can borrow is usually determined by your percentage of gross monthly income, debt to income ratio, your credit score, and the amount of money you are willing to put down.

Home Affordability Calculator

You should aim to keep housing expenses below 28% of your monthly gross income. If you have additional debts, your housing expenses and those debts should not exceed 36% of your monthly gross income.

For example, if your interest rate is 6 percent, you would divide 0.06 by 12 to get a monthly rate of 0.005. You would then multiply this number by the amount of your loan to calculate your loan payment. If your loan amount is $100,000, you would multiply $100,000 by 0.005 for a monthly payment of $500.