Home affordability factors
Before you start house hunting, it helps to understand the main factors lenders look at when deciding how much house you can afford. These include your income, existing debts, down payment, loan terms and debt-to-income ratio.
Income, debts and down payment
Lenders consider your income, current debts and how much you’ve saved for a down payment to figure out your loan amount, interest rate and monthly mortgage payment.
Your income alone doesn’t determine how much you can borrow. If too much of it already goes toward bills such as credit cards, auto loans or student loans, that limits how much mortgage you can take on.
Your down payment also matters. Making a larger down payment means you’ll borrow less, which makes you less risky to lenders. Putting down 20% or more could help you get a lower interest rate and reduce your monthly payment.
Loan terms and APRs
Loan terms and interest rates directly affect your monthly payments. Lower interest rates mean lower monthly payments. A longer loan term, like 30 years, spreads out payments but costs more in interest over time. A 15-year term costs less in the long run but requires higher monthly payments.
Debt-to-income ratio
Your debt-to-income ratio (DTI) is the percentage of your monthly income that goes toward paying your debts. It’s calculated by dividing your total monthly debts by your gross monthly income.
Lenders use DTI to assess how much financial room you have for a mortgage. The lower your DTI, the less risky you look, and the more likely you are to qualify for favorable loan terms.
» MORE: Best mortgage lenders
Home loan prequalification
Prequalification is a preliminary step in the homebuying process where the lender evaluates your financial situation to estimate how much you may be able to borrow. It’s not a full loan approval, but it gives you a clear sense of your price range and can help you avoid shopping outside of your budget.
Prequalification isn’t a full mortgage offer, but it gives you a clearer price range and helps you make stronger offers.
The prequalification process is usually quick since you don’t need to submit any official documents; you’ll just provide basic information that helps the lender run a soft check. Once you’re prequalified, you’ll have a better idea of your price range.
This process involves reviewing your income and debts. Lenders use the information you provide to give you a rough loan estimate, which helps you conduct a more realistic home search.
Getting prequalified can also make you a more competitive buyer. It shows real estate agents and sellers that you’re serious and financially prepared, which could give you an edge over buyers who haven’t taken that step.
How property taxes and homeowners insurance affect affordability
The home’s actual price tag isn’t the only number you’ll need to consider when factoring the cost of buying one. Importantly, you’ll also need to look at property taxes in your area.
Property taxes are typically levied at the local level, so you might pay a different rate in one city or county than you would in an adjoining jurisdiction. If you’re looking at homes in a given metro area, see how the property tax rates compare within or outside of the city limits, or in a neighboring county. Property taxes may be added to your monthly mortgage payments, so your local tax rate can play a big role in determining how much house you can afford.
You’ll also need to consider the cost of homeowners insurance. If you’re purchasing a home in an area that’s at high risk for flooding or other natural disasters, for example, you can expect to pay higher homeowners insurance premiums than if you buy a home in a lower-risk area.
Mortgage affordability
If you’re not ready to get prequalified for a mortgage but still want some idea of how much home you can afford, play around with a home affordability calculator. Home affordability calculators give you a ballpark price range based on your financial information. The figures may not be 100% accurate, but they can give you a useful starting point before talking to a lender.
You can try entering rough estimates for your loan term, interest rate, down payment and property taxes to get an idea of what your ideal price range might look like. Use the ConsumerAffairs mortgage affordability calculator below to discover what you can realistically afford.
Mortgage calculator
Loan types and terms
Some of the most common home loan types are conventional, Federal Housing Administration (FHA) and VA.
Conventional loans typically require higher FICO scores and larger down payments than government-backed loans.
FHA loans are more flexible and great for first-time buyers. If you have a credit score of 580 or higher, FHA loans can allow you to put only 3.5% down. VA loans are for qualified military veterans and often come with no down payment requirement.
Beyond loan types, loan terms also matter. A 15-year loan has higher monthly payments but saves you money on interest. A 30-year loan, on the other hand, stretches out payments and gives you more breathing room each month, but you’ll pay more in total.
» COMPARE: 15-year vs. 30-year mortgage
Tips for improving home affordability
Homebuying is becoming more and more out of reach for many American households. According to the National Association of Home Builders, around 76 million households (57% out of a total of 134.3 million) can’t afford a $300,000 home.
If you’re hoping to become a homeowner, here are a few ways to lower your homeownership costs and reach that goal.
- Pay down existing debts: The less debt you owe, the lower your debt-to-income ratio and the easier it will be to qualify for better loan terms.
- Improve your credit score: A higher FICO score can help you lock in lower interest rates, which means more affordable monthly mortgage payments over the life of the loan.
- Save more for a down payment: Putting down more money upfront reduces the amount you need to take out. That can lower your monthly payments and might even eliminate the need for mortgage insurance.
- Hold off on new credit: Avoid applying for new credit cards or loans before you buy a home. New credit inquiries and added debt can lower your score or affect your loan approval.
- Explore local housing programs: Many states and cities offer first-time buyer assistance, including grants, lower interest loans or down payment support. See what options are available in your area.
FAQ
What is the 28/36 rule in homebuying?
In homebuying, the 28/36 rule is a guideline lenders often use to determine how much house you can afford. The rule says that no more than 28% of your monthly income should go toward housing costs (such as mortgage, insurance and property taxes), and no more than 36% should go toward total debt payments, including credit cards, car loans, student loans and your mortgage.
Why is prequalification important before house hunting?
Prequalification is important before house hunting because it gives you as the buyer a ballpark estimate of how much a lender might be willing to give you based on your income, credit, DTI ratio and other factors.
Though getting prequalified doesn’t guarantee you’ll be approved for a loan, it does give you a better idea of how much house you can afford and shows sellers that you’re a serious buyer.
What are the benefits of a fixed-rate mortgage?
One of the biggest benefits of a fixed-rate mortgage is that your interest rate and monthly payment stay the same for the life of the loan. That stability makes it easier to budget and protects you from economic fluctuations.
Can I afford a house with a high debt-to-income ratio?
It depends. A high debt-to-income ratio typically makes it harder to get approved for a home loan since lenders see you as a bigger risk. That said, you may still be able to afford financing a house since some loan programs allow higher DTIs, especially if you have strong credit or make a large down payment.
Article sources
ConsumerAffairs writers primarily rely on government data, industry experts and original research from other reputable publications to inform their work. Specific sources for this article include:
- National Association of Home Builders, “Nearly 60% of U.S. Households Unable to Afford a $300K Home.” Accessed Jan. 5, 2026.
- Tax Foundation, “Property Taxes by State and County, 2025.” Accessed Jan. 5, 2026.
