A home affordability calculator can help you figure out how much house you can afford, based on your income and debt. Gross income is the amount you earn before taxes and is divided by 12 to determine qualifying income. Monthly expenses should also be included. The lender will also look at your total debt payments and divide this by your income, which is called your debt-to-income ratio. In order to determine your affordability, make sure you know how much you can afford to pay each month.

There are many ways to determine whether a home is within your affordability. A home affordability calculator uses rounded numbers and rules of thumb, such as not having a monthly mortgage payment that is more than two-and-a-half times your gross monthly income. Monthly debt obligations should be lower than 45 percent of your gross monthly income. Don’t forget to factor in closing costs, property taxes, and homeowners insurance, because these can add up.

Another way to determine your affordability is by calculating your down payment. Typically, people should have at least a twenty-percent down payment. Putting down a larger amount will decrease your loan-to-value ratio, which will affect the lender’s risk assessment. However, the more you put down on the house, the more affordable your monthly payments will be. If you’re planning on paying off your mortgage in full, a higher down payment will reduce the monthly payments, and you’ll be able to enjoy your new home sooner.

If you’re thinking of buying a home, you should consider the size and location. A home with three bedrooms and two bathrooms in Houston, for example, would cost approximately $300,000.

Having this much down payment will allow Martin to buy a house in the same price range. Depending on how much down payment he has, he can afford a home worth five times his savings. However, if he decides to purchase a house in a higher price range, he will need to put down a twenty percent down payment. That would limit his purchase to a home that costs five times his savings.

Regardless of the size of your down payment, make sure you know your monthly expenses before applying for a mortgage. By understanding how much money you can spend comfortably, you can afford a home without sacrificing other major financial goals. For instance, if you earn $4,000 a month, you’ll have an extra $500 a month after paying your mortgage. Taking into account other types of consumption is crucial in your financial planning.