<#-- Rebranding: Header Logo--> <#-- Rebranding: Footer Logo-->

Buying a Home: Calculate How Much Home You Can Afford

  1. Buying a Home: Introduction
  2. Buying a Home: Choosing Your Location
  3. Buying a Home: Determine Which Kind of Home Suits Your Needs
  4. Buying a Home: Calculate How Much Home You Can Afford
  5. Buying a Home: Special Programs for First-Time Buyers
  6. Buying a Home: Get Preapproved for a Loan
  7. Buying a Home: Find an Agent
  8. Buying a Home: Find a Home
  9. Buying a Home: Write an Offer
  10. Buying a Home: Go Through the Escrow Process
  11. Buying a Home: Get Properly Insured
  12. Buying a Home: Close and Become a Homeowner
  13. Buying a Home: Conclusion

So you’ve picked out some locations you’re interested in and thought about the style of home that suits you best. Now it’s time for some planning of the less fun variety. Before you start looking at houses – and, somewhat counterintuitively, before you start shopping for a loan – you need to figure out how much home you can afford.

Why Do It Yourself?

The reasons for doing your own affordability calculations are twofold. First, you don’t want to look at houses you can’t afford. Doing so will give you unrealistic expectations and make homes that actually fall in your price range look less appealing. It’s better to start looking at the bottom of your price range or even below your price range and work your way up. That way, you’ll really appreciate what an extra $25,000 or $50,000 will get you.

Second, you want to do your own math because a lender may say you can afford more house than you would actually be comfortable paying for. While lenders will ask for detailed financial information when you apply for a mortgage, their questions only pertain to income and debts. They will not know the other costs that eat away at your disposable income, like your monthly grocery expenses, how much you spend on gas, whether you pay for childcare, the size of your health insurance premiums, if you have high ongoing medical costs, what your water bill is and how much you spend on entertainment.

What lenders will learn about are your monthly debt payments (like credit cards and student loans), the four major components of your home payment (property, interest, taxes and insurance), and any amounts you are legally obligated to pay (for example, child support or alimony). Don’t let a lender tell you how much you can afford based on its partial picture of your financial situation. Just because you are approved to borrow a certain amount that leads to a certain monthly payment doesn’t mean you have the cash flow to make it work.

Calculate Your Affordable Monthly Housing Payment

Calculators exist online to show you the monthly payment and home price you can afford. Every major real estate website and many personal finance websites have them. But their calculations are often as simplistic as lenders’. You need to do your own math to get an accurate affordability picture.

Follow these steps to determine what you can comfortably afford.

1. Figure out your household’s take-home pay after tax.

What do you and any other income-earners who will be contributing to the household bills bring home each month after tax? Look at your last pay stub to get this amount. This is how much money you currently have to spend each month. If you have an irregular income, take the average of your last 12 months’ pay.

2. List your household’s recurring monthly expenses.

This list should include bills you pay every month, like the electric bill, and bills you only pay some months, like car insurance. If you don’t already have a budget where you’ve been tracking these expenses, look at your checkbook, bank statements and credit card statements to figure out what you’ve been spending. Note which expenses are necessary (like the electric bill), which are totally optional (like going out to eat for fun and buying new clothes for fashion’s sake), and which are necessary but flexible (like your phone and grocery bills).

3. List the expenses you will add when you become a homeowner.

These expenses will vary depending on the type of home you purchase. In a condo or townhouse, you will most likely have to pay monthly homeowners’ association fees, which will cover things like landscaping of common areas, upkeep of indoor common spaces (like hallways, stairwells and elevators), upkeep of recreational areas (like pools or clubhouses), and water, sewer and garbage costs. In a house, expenses you’ll have that you don’t have as a renter include water, trash and home maintenance. In any type of property, you’ll pay property taxes and hazard insurance (also called homeowners insurance or fire insurance, though it protects against much more than fires). If you’re moving farther from your job, your transportation costs may increase. (For more on costs you may not have considered, watch our video on 11 Hidden Costs of Owning a Home.)

It can be hard to estimate these expenses accurately when you’re not used to paying them. Ask people who live in your target neighborhood, talk to a real estate agent who is familiar with your target neighborhood or make a few phone calls to city agencies and insurance companies to get a reasonable idea. Also, if you’re going to make a down payment of less than 20%, you’ll need to factor in the monthly cost of private mortgage insurance (PMI). Remember, it’s better to overestimate than underestimate your expenses when planning your budget. Having a cushion of safety is better than being house poor. (For related reading, see How to Outsmart Private Mortgage Insurance and 6 Reasons to Avoid Private Mortgage Insurance.)

4. Figure out which expenses will go away.

For example, if you’re paying for renters insurance, you’ll be able to cancel that after you buy a home. If you’re planning to cut back on certain fun activities (like going out to eat) to free up more funds for the house, note these as well. If you’re moving closer to work, your gas costs will go down.

5. Determine how much you have left after expenses to spend on housing.

Once you know how much money you take home and what you spend each month (excluding your current rent payment), determine how much you have left over each month to spend on housing. When you make this calculation, don’t forget to leave room to save for emergencies, retirement and whatever else you want to save up for (vacations, home renovations, etc.). In other words, count savings as a non-negotiable “expense.”

6. Figure out how much house you can buy.

An easy way to do this yourself is to play with mortgage payment calculators online (see our Mortgage Calculator and How Much House Can I Afford Checklist) to figure out the purchase price you can afford based on the monthly payment at different interest rates. Take today’s rate for your geographic area and your loan type and calculate your payment for 0.5% above and below that rate. If today’s rate is 5.5%, calculate what you can afford at 5% and 6% to get a range of possibilities, since you might qualify for a rate that’s higher or lower than the advertised rates and since mortgage rates might change between when you start shopping and when you get a home under contract. (For insight on the importance of a good rate, see Got a Good Mortgage Rate? Lock It Up!)

Now, despite what we said earlier, NerdWallet’s home affordability calculator is one of the better options. After you answer the usual questions about your location, income, debt and credit score, you’ll get a graphic you can mouse over to see how much house you can afford with different levels of expenses and savings. But if you haven’t followed steps 2, 3 and 4 above, it still won’t give you an accurate answer. And if you’re self-employed, any calculator’s automatic assessment of your tax rate based on your gross income might not be accurate.

Interest Rate Breakdown

Interest rates change multiple times a day, and the interest rates available at the time you actually get a home under contract and lock your rate will affect how much house you can afford. The more you’re borrowing, the bigger the difference the interest rate will make in your monthly payment. Here’s a chart showing how this works for someone who can afford to spend $1,500 a month on principal and interest:

Loan Amount

Interest Rate

Loan Term

Monthly Payment (Principal and Interest)



30 years




30 years




30 years




30 years




30 years


To keep things simple, this example assumes you don’t have to pay private mortgage insurance (PMI), which means you made a down payment of 20% or more. The more you borrow, the higher your monthly PMI will be.

Still not sure you can afford a home? Maybe you can, with help from a special program for first-time buyers.

Buying a Home: Special Programs for First-Time Buyers