How Much House Can I Afford?


Potential buyers, especially first-time home buyers often wonder just how much house they can afford. The answer is both simple and complex. 

A basic calculation that mortgage companies and banks use is 28% of your gross income. As an example, if your gross income is $60,000, you would be eligible for a mortgage of up to $1,400 per month.

$60,000 x .28 = $16,800 

$16,800 / 12 = $1,400

The simple mortgage company calculation does not take into account your down payment. 20% is the standard down payment. If you plan to put more than the standard 20% down on your new home, your monthly payments will be lower. If you cannot afford to put 20% down, your mortgage payments will be higher and you will be required to pay for PMI (private mortgage insurance) by your lender. Depending on your down payment, you may be able to buy ‘more’ or ‘less’ of a house.

Simple calculators also do not take into account what you are comfortable borrowing. Many buyers choose not to buy to their maximum allowable mortgage payment. They choose a more conservative home that will keep their mortgage lower and allow them additional financial flexibility.

No matter where you are in the mortgage application process, it's always helpful to speak with a professional for the best advice. Our team at Lewis & Kirk can recommend a mortgage loan banker if you do not have one.

Enjoy the Adventure!