Budgeting
How much house can I afford? A calmer way to find your number
Lenders will tell you the most you can borrow. A better question is what payment still lets you sleep at night. Here is how to find both numbers.
Published
Read time
7 min read
By
Rachel Kim
Online calculators love big numbers. The amount a lender will approve and the amount that feels comfortable are often a few hundred thousand dollars apart, and knowing both keeps your search honest.
Start with the whole monthly payment
Your housing payment is more than principal and interest. Add property taxes (roughly 1.1% to 1.25% of the price per year in much of San Diego County), homeowners insurance, HOA dues and any mortgage insurance.
An example
A $750,000 home with 20% down leaves a $600,000 loan. At a 6.25% rate on a 30-year fixed loan, principal and interest come to about $3,694 a month. Add roughly $780 for taxes, $150 for insurance and any HOA dues, and the full payment lands near $4,600.
The ratios lenders use
Housing ratio: many lenders like your full payment under about 28% to 36% of gross monthly income
Debt-to-income: all monthly debts, including the new payment, often capped around 43% to 50%
Cash reserves: a few months of payments left in the bank after closing
Your comfort number
Take your take-home pay, subtract what you spend and what you want to save, and see what is left for housing. If that number is lower than the lender’s maximum, shop at your number. Nobody ever regretted a payment that left room to breathe.
General education, not advice
This guide explains how mortgages generally work. Any rates and payments in examples are sample figures for illustration, not a commitment to lend. Rules change and your situation is your own, so talk to a licensed loan officer before you decide.
