What is the Process

How Much Can You Afford?

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Step 3: Determine how much you can afford

Once you determine you’re ready to be a homeowner and in a financial position to buy a home, you can figure out how much you can afford to spend on a house.

What you can afford to spend depends on how much money you earn, the debt payments you’re already making, and more. The 3by30 Mortgage Calculator is an easy way to get an idea of how much you can afford to spend.

You enter your savings, any downpayment assistance, your credit score, the expected interest rate of your mortgage and an estimate of property taxes, insurance and other costs as well as the cost of the home (the default is $250,000 but you’ll want to use a higher number in some markets. A good place to start is three times your family income. The calculator will then tell you what your monthly payment will be. Once you have an initial estimate, you can increase or decrease the home price to come up with a downpayment or monthly cost that you are comfortable with.

You can use Freddie Mac’s mortgage rate survey to get an idea of current average interest rates. In addition, this page has average homeowners insurance rates per state. And you can always add and update the numbers you enter into the calculator as you go through the homebuying process.

The goal at this stage is to get as realistic an idea as possible of what you can afford to spend on a home.