Calculate your home buying budget based on your income and debts
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Book a DemoA common guideline is that your monthly housing payment should not exceed 28% of your gross monthly income (front-end ratio). Your total monthly debt payments, including the mortgage, should not exceed 36% of your gross income (back-end ratio). For example, with a $100,000 annual salary, you could afford approximately $2,333/month for housing.
The 28/36 rule is a lending guideline stating that a household should spend no more than 28% of gross monthly income on housing expenses (front-end ratio) and no more than 36% on total debt service including housing and other debts like car loans and credit cards (back-end ratio).
Down payment requirements vary by loan type. Conventional loans typically require 3-20%, FHA loans require as little as 3.5%, VA and USDA loans may offer 0% down options for eligible borrowers. A 20% down payment helps you avoid private mortgage insurance (PMI).
Key factors include: your gross income, existing monthly debt payments, credit score, down payment amount, interest rate, property taxes and insurance costs in your area, and the loan term you choose. A higher credit score can qualify you for better rates, potentially increasing your buying power.
It's generally wise to buy below your maximum affordability to maintain financial flexibility. Consider future expenses like maintenance, repairs, and lifestyle costs. Many financial advisors recommend keeping total housing costs below 25% of take-home pay for comfortable living.