First Home Basics: How Much Can I Afford?

How much can I afford?

As a rule of thumb, most lenders will qualify you for a loan that has a total monthly payment between 28% to 36% of your gross monthly income (in other words, your income before taxes).

For example:

Your yearly salary: $40,000
Your gross monthly income*: $3,333
Gross monthly income x 28% $933
Gross monthly income x 36% $1,200

Therefore, as a rough estimate, for a person making $40,000 a year, their lender will likely qualify them for a loan with a monthly payment in the $933 to $1,200 range.

Assuming a 6% interest rate and 30-year mortgage, this homebuyer could qualify for a home priced between $142,000 and $183,000.


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* $40,000 divided by 12

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