How Much Mortgage Can I Qualify For? Affordability Calculator, FAQs And More

It's a common question you may ask when you decide you're buying a house: "How much mortgage can I qualify for?" It's a valid question because you want to figure out what you can afford as part of the home buying process – you want to make your mortgage payments and meet other financial obligations.

Using a Home Affordability Calculator might be a logical first step to take to determine the amount you can afford to spend on a home. If you're wondering, "How much house can I afford?" we'll list the factors that affect mortgage affordability and ideas for increasing the amount you can afford.

Understanding Mortgage Affordability

Having a mortgage that fits your budget is important for financial security. You want your home purchase to fit into your monthly budget and still allow you to pay your bills, assure your ability to save for retirement, education and other goals.

A common way of determining the percentage of income to use on a mortgage is by using the 28/36 rule.

The 28/36 rule is a simple way to determine how much mortgage you can afford. The rule states that you should spend no more than 28% of your monthly income on your mortgage, and that your overall debt should not constitute more than 36% of your monthly income.

Financial Factors That Determine How Much House You Can Afford

A person’s financial situation is a hugely important factor in determining the amount of mortgage they can qualify for and afford.

• Gross monthly income: Gross monthly income refers to the total amount of income you receive in a given month before taxes and other deductions. It may include regular wages or salary, bonuses, overtime, side gig earnings, bank account interest, dividends, rental income, sales, child support and Social Security.
• Yearly salary: Your yearly salary refers to the money a company pays you annually. Gross monthly income and yearly salary are two of the most important factors in determining how much home you can afford because it indicates exactly the amount you have coming in that can go toward mortgage payments.
• Debt-to-income ratio: Your debt-to-income ratio (DTI) is a percentage of the money you spend on monthly debt payments against the amount of money you have coming into your house. It tells the lender how much money you already have going toward debt. Home buyers can add up their minimum monthly debt payments and divide that figure by their monthly pretax income.
• Credit score: A credit score is a creditworthiness indicator, a number that ranges between 300 and 850. The higher your credit score, the better your chances of qualifying for a loan with a lower interest rate. It helps the lender determine how responsible you are at handling your debt.
• Taxes and insurance costs: The costs don't end there. Homeowners also need to factor in the applicable property tax and the cost of homeowners insurance when determining home affordability.

Mortgage Factors That Determine How Much House You Can Afford

Aside from personal finances, the details of a mortgage are also important factors to consider when shopping for a home and answering the question, "How much mortgage do I qualify for?"

Loan Term

The mortgage loan term you choose can affect the amount you can afford to make in monthly payments. Most homeowners choose either a 15- or 30-year mortgage, which means that by the end of that mortgage term, your home will be paid off.

Your monthly payment will be lower with a 30-year mortgage, but you'll get a higher interest rate and pay more money in interest over the life of the loan. A 15-year mortgage, on the other hand, will carry a lower interest rate, but you'll make higher mortgage payments because you have less time to pay the loan back.

Interest Rate

Mortgage interest rates are the amount you pay to borrow, expressed as a percentage. Interest rates can affect mortgage affordability, because the higher your interest rate, the more you’ll pay per month in mortgage payments. Borrowers with a great credit score qualify for the best terms and mortgage rates.

Down Payment Requirement

A down payment is the amount you pay out of pocket for the home. You may have heard that you need to put down a 20% down payment, but you can find no-down payment mortgages (if you qualify) or loans that require a down payment as low as 3%. The more you pay in a down payment, the less you'll need to finance the mortgage. The less you borrow, the lower your monthly payments will be.

Note that if you do pay less than 20% in a down payment, you’ll pay private mortgage insurance (PMI), which help protects the lender’s investment and gets rolled into your monthly mortgage payments.

Closing Costs

Closing costs are the fees you pay when you close on your home. Closing costs usually include expenses like the appraisal fee, closing fee and mortgage insurance. The exact amount you'll pay in closing costs depends on where you live and the type of loan you're pursuing.

Some lenders let you roll your closing costs into your loan, but doing so increases your mortgage payments.

Loan Type

Different loan types, such as FHA loans, VA loans or jumbo loans, can affect how much mortgage a person qualifies for. For example, a VA loan – for those who qualify – may allow you to borrow up to 100% of the home value because no down payment is required. A jumbo loan will allow you to borrow over the conforming loan limits that are set by the Federal Housing Finance Agency (FHFA).

Can You Increase The Amount Of Money You Can Qualify For In A Mortgage?

You can increase the amount of mortgage you can qualify for, but the most effective strategies involve improving your credit score and lowering your DTI – which may take some time.

You can improve your credit score by paying your bills on time every month, reviewing your credit reports for inaccuracies, reducing your spending, limiting applying for new credit and keeping old credit accounts open (such as on old credit cards).

You can also lower your DTI by increasing your monthly income and lowering your monthly debt payments. Focus on paying down debt, targeting debt with the highest interest rates (avalanche method) or lowest balances (snowball method).

Mortgage Affordability FAQs

The following FAQs can help you answer questions about home affordability.

How much income do I need for a $200k mortgage?

There are many factors that affect the loan amount you can qualify for. The amount of income you bring to the table is just one of the factors that affect the final amount. Talk with your lender to determine your requirements and qualifications.

Should I buy or rent?

Should you buy a house vs. renting? It's a personal decision, but it's worth looking at the pros and cons of buying a house and renting. Buying a house means investing in living space that will continue to appreciate in value and build equity. You can also customize it, which you may not be able to do when you rent.

However, renting can allow you to improve your credit or save up for a down payment. You also won't have to worry about maintenance costs, HOA dues and property taxes. Plus, you may not feel as "stuck" living in a rental property long-term.

How is mortgage qualification determined?

Many factors go into determining the amount of mortgage you'll qualify for. They include income, debt, credit score, assets and property type. Check with your lender for other factors that impact your ability to qualify for a mortgage.

The Bottom Line: How Much House You Can Afford Will Vary

It’s important to analyze and evaluate your budget to determine how much mortgage you can afford. Start by using our Home Affordability Calculator.

Consider all the factors we've listed when shopping for a home. Ensure you get a mortgage that fits your budget and lifestyle.

Apply to see how much mortgage you can qualify for with our friends at Rocket Mortgage^®.