Affordability Calculator

How Debt-to-Income Ratio Affects Affordability

Lower DTI:

• Indicates manageable debt, making you a less risky borrower.
• May lead to better loan terms, like a larger loan or lower interest rate.
• Increases the price range of homes you can afford.

High DTI:

• May limit homebuying options and result in less favorable loan terms.
• Can restrict your ability to afford a more expensive home.

Improving DTI:

• • Pay down debts, increase income, or reduce monthly expenses.
  • Demonstrates financial responsibility, enhancing home-buying options.
  • Helps secure a home within your desired price range.

It’s important to understand DTI and what it means.

The 28%/36% Rule: Why It Matters

The 28/36 rule is a key guideline used by lenders to determine mortgage affordability. Here’s what it means:

28% Housing Expenses:

• Your monthly housing costs (mortgage, taxes, insurance, HOA fees) should not exceed 28% of your gross monthly income.
• Example: If your income is $5,000, housing expenses should not exceed $1,400 ($5,000 x 0.28).

36% Total Debt Payments:

• Your total debt payments (including housing expenses) should not exceed 36% of your gross monthly income.
• Example: With a $5,000 income, total debt payments should not exceed $1,800 ($5,000 x 0.36).

Benefits of the 28/36 Rule:

• Reduced Financial Stress: Limits housing and debt expenses to avoid financial strain.
• Improved Creditworthiness: Lenders favor lower debt-to-income ratios.
• Increased Financial Flexibility: Allows for savings and other financial goals.

Use our refinance calculator with today's mortgage rates to estimate your new loan payment. If your credit score has improved, you may qualify for a lower interest rate.

Factors Affecting How Much House You Can Afford

Income:

• Higher income allows for a larger home budget.
• Follow the 28/36 rule: 28% of income on housing, 36% on total debt.

Cash Reserves:

• Important for upfront costs like down payments and closing costs.
• Includes savings, IRAs, stocks, and bonds.
• Improves mortgage qualification and loan terms.

Debt and Expenses:

• Existing debt and monthly fees impact mortgage affordability.
• Reducing debt improves your debt-to-income (DTI) ratio.

Credit Profile:

• Strong credit score leads to better mortgage terms.
• Lower interest rates and favorable terms increase home-buying options.

How Your Credit Score Affects Affordability

High Credit Score:

• Indicates responsible borrowing.
• Leads to favorable interest rates and loan terms.
• Enables affordability of larger or more expensive homes.

Low Credit Score:

• Results in higher interest rates and less favorable terms.
• Makes it harder to afford a larger home.
• May prevent mortgage qualification, limiting options.

Impact:

• Credit score influences mortgage rates and terms.
• Improving your credit score before buying is beneficial.

Improving Home Affordability

Property Taxes:

• Research tax rates in areas you're considering.
• Choose locations with lower property taxes.
• Consider appealing your assessment if it seems high.

Emergency Fund:

• Save 3-6 months of living expenses for unexpected costs.
• Maintain this fund in an easily accessible account.

Repairs and Maintenance:

• Conduct a home inspection before buying.
• Budget for routine maintenance and unexpected repairs.

Home Insurance:

• Shop around for the best coverage and price.
• Consider increasing your deductible or bundling policies to lower premiums.

FAQs

What Are the Upfront Costs of Buying a Home?

• Down payment, closing costs (2-5% of purchase price), home inspection fees, appraisal fees, and moving expenses.

How Can I Get Assistance in Buying a Home?

• Government-backed loans (FHA, VA, USDA), down payment assistance programs, and grants for first-time homebuyers. Research local, state, and federal programs for eligibility.

How Much House Can I Afford Making $100k a Year?

• Depends on credit score, down payment, cash reserves, and debt-to-income ratio. Use a home affordability calculator for guidance.

How Much Should I Have Saved When Buying a Home?

• Enough for a down payment (ideally 20%), closing costs (2-5%), inspections, moving costs, and an emergency fund for unexpected expenses.