Knowing how much house you can afford is a matter of comparing your financial situation to the factors lenders consider when approving a mortgage application. Those include a steady income, adequate savings for the down payment and closing costs, the amount of debt you carry, and your repayment history.

However, the amount of money you are approved to borrow with a mortgage and how much house you can comfortably afford can be two very different numbers. Lenders want to make loans for the highest dollar they feel comfortable with based on certain elements of a borrower’s personal finances. That's a business decision.

For you, affordability is a quality-of-life calculation. Only you know your comfort level with all of the expenses due each month.

Run the calculations below, then aim lower than the maximum results to give you a financial cushion. Armed with this information, you can determine which type of mortgage you might qualify for — and, more importantly, how much house you can afford.

Read more: Why are house prices so high?

Using a home affordability calculator

Knowing your target loan amount will help you determine how much house you can afford. In this formula, you'll use:

• Your gross monthly income (before taxes and deductions).

• Your monthly debt, such as vehicle and student loans and credit cards.

• The down payment you have saved.

• The loan term (e.g., 15-year versus 30-year mortgage).

• The interest rate you'll qualify for.

• Your credit score.

A sample mortgage affordability calculation could be:

Gross annual income: $66,000 (or $5,500 per month)

Your monthly debt: $400

Down payment: $20,000

Loan term: 30 years

Interest rate: 6%

Once you factor in payments for private mortgage insurance (PMI), homeowners insurance, and property taxes, such a calculation might yield the result of qualifying for a mortgage up to $179,285, with a home a monthly payment of $1,980.

If you buy a place with a homeowners' association that charges dues, you will also pay a little more each month.

Read more: PITI (principal, interest, taxes, insurance) and how it affects your mortgage payments

How to know what price house you can afford

When you’re determining your house budget, ask yourself two crucial questions: First, how much house can you afford up-front? Second, how much house can you afford in the long-term? The up-front costs consist of your down payment and closing costs, and the longer-term expenses refer to your monthly payments and cash reserves.

Down payment

Your down payment is the amount you pay in cash when you buy the house. Let’s say you buy a $400,000 home with a $20,000 down payment. Then, you’ll take out a mortgage for the remaining $380,000.

Here are the minimum down payments for the most common types of mortgage loans:

• Conforming conventional loan: 3%

• Jumbo loan: Usually 10% to 20%

• FHA loan: 3.5%

• VA loan: 0%

• USDA loan: 0%

Use these minimums to determine your true home affordability. For example, if you don’t have 3% of $400,000 — or $12,000 — you probably can’t get a conforming loan, not to mention a jumbo or FHA loan. If you don’t qualify for a USDA or VA loan, then you now know that you should buy a less expensive home. Or save more before buying.

Closing costs

It’s easy to forget about closing costs when calculating your home-buying budget. The exact amount varies, but you can typically expect to pay 2% to 5% of your loan amount in closing costs.

So, let’s say you want to buy a $400,000 home with a conforming mortgage. You’ll need $12,000 for a down payment and 2% to 5% of the amount you’re borrowing ($388,000), which is $7,760 to $19,400. This means you’ll need a total of $19,760 to $31,400 to realistically afford the house on closing day.

Closing costs vary by mortgage lender but include expenses like a home appraisal, inspection, title search fees, credit report checks, and more.

Learn more: How long does it take to close on a house?

Cash reserves

You probably don't want to spend every last dime on your down payment and closing costs. Then you risk becoming what's known as "house poor." You should still have three to six months of expenses in an emergency fund, and ideally, you’d have some extra money set aside for inevitable house repairs or things you want to buy for the house, like furniture or decorations to make the space feel like yours.

Monthly mortgage payments

Now that you’re a homeowner, you’ll need to make sure you can comfortably afford the monthly payments. Use our calculator to see how much you can realistically afford. You don’t want to struggle to make your payments each month. In this case, your quality of life could suffer — and you could even end up losing your home in foreclosure.

Learn more: Use our free monthly mortgage payment calculator

Your debt-to-income ratio is important to lenders

In addition to your salary, savings, and repayment history, debt-to-income ratio is one of the most important factors lenders use in determining the home loan you qualify for — and the interest rate you'll be charged.

How to calculate your DTI

To start, you'll need three things to calculate your debt-to-income ratio (DTI):

1. Your monthly gross income, which is before any deductions for benefits, retirement savings, taxes, and the like.

2. The monthly total of debt payments. That would include the minimum amount due for credit cards, student loan payments, car loans, and other monthly debt payments.

3. Your estimated monthly mortgage payment.

Next, you'll divide your debt by your income.

A sample calculation:

Monthly debt (including your mortgage): $2,000. Gross monthly income: $5,000. DTI: 2,000 / 5,000 = 0.40.

Read more: Which is more important, your house price or interest rate?

The 28/36 DTI rule

Another clue to examining home affordability is the 28/36 rule. Lenders use this to zero in on what you currently owe and how a mortgage will impact that debt load. It can help you determine what percentage of your income should go to a mortgage.

28% is the maximum total of your housing expenses. This is known as the front-end debt-to-income ratio, which is your mortgage, property taxes, and homeowners' insurance. Housing costs / income = front-end ratio.

You can reverse the calculation and multiply your income by 0.28 to determine a target mortgage payment.

36% is the limit to your total debt, including the mortgage and existing loans and credit balances. It's called the back-end debt-to-income ratio. All debt / income = back-end ratio.

Tip: Mortgage lenders have flexibility for well-qualified buyers. If you have a decent down payment and a credit score on the high end, they might stretch your back-end ratio as high as the low 40s. However, you will likely also pay a higher interest rate.

Read more: What is the current 15-year mortgage rate?

Determining true home affordability

You're buying a house. The lender is selling a mortgage. With that perspective, it's easy to understand that only you can determine true affordability. You have to make the monthly home loan payments. And you may want to travel, buy new furniture, buy a new car, save for the future — or a hundred other things.

So, a lender might approve you for a loan to buy too much house with a too-large payment. Your sense of what you can really afford may convince you to buy a house at a more reasonable purchase price with lower payments.

That's being in control of home affordability.

Learn more:

• What is the monthly payment on a $600,000 mortgage?

• How much is a mortgage on a $500,000 house?

• What is the monthly payment on a $400,000 mortgage?

• How much is the monthly payment on a $300,000 mortgage?

• What is the monthly payment on a $200,000 mortgage?

House affordability FAQs

How much house can I afford if I make $50,000, $70,000, or $100,000 a year?

As noted in our 28/36 DTI rule section above, multiplying your gross monthly income by 0.28 is a good rule of thumb for a max target mortgage payment, including taxes and insurance. For a $50,000 annual income, take 50,000/12 = 4,166. That’s your monthly income. Then multiply 4,166 x 0.28 = 1,166. A $1,166 monthly payment would allow a home price of about $149,000 for a 30-year loan at 7%. Remember, that’s with no down payment and without considering closing costs.

Similar calculations for other annual incomes:

A $70,000 income would allow a purchase of a house priced at around $209,000, with the same terms as noted above.

A $100,000 income would allow a purchase of a house priced at about $298,000.

How can I increase how much home I can afford?

Having a healthy savings stash helps build your home purchasing power. That means you can make a decent down payment and show that money is set aside for not only your housing payment but all of your monthly debt, including a car payment, credit card debt, and living expenses. A good credit report not only impacts how much home you can afford but also helps you qualify for a lower interest rate.

What costs do I need to consider when buying a home?

In addition to the mortgage loan payment, insurance premiums, and taxes, you’ll want to consider things like HOA fees, and if you put less than 20% down on a conventional loan, you’ll likely have to pay private mortgage insurance. There are also everyday expenses to factor in, such as transportation costs, childcare, or furniture for your new home.

How do I know when I’m ready to apply for a mortgage?

One big clue to knowing you are in a good place financially to buy a home is when your current monthly expenses are well in hand. That means you have a comfortable household income, are well on top of credit card payments, and have set aside some cash for unexpected expenses. Your total monthly debt is within the DTI parameters we mentioned above. And your annual income is steady and perhaps even expected to grow in the years ahead.

How does debt impact my home affordability?

Debt is a major part of home affordability. Your debt-to-income ratio is a key factor that lenders look at. Using a home affordability mortgage calculator can give you a clue as to how your debt impacts your homeownership qualifications.