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How Much Can I Afford?

Knowing how much you can afford to pay is a crucial step in your search. Nailing down your budget early will make the overall process more focused and less stressful.

Here’s a good way to figure out how much you can afford:

The 28/36 Rule

The 28/36 rule is an established benchmark used by many lenders to determine how much credit to offer you. Here's how it works:

 


 

Get preapproved for a mortgage. Your lender can approve you for a certain to loan amount prior to your home search. This gives you a solid number against which you can assess the affordability of the houses you visit.

 


 

 

 

The "28" refers to the notion that no more than 28 percent of your gross monthly household income should go toward housing costs, which include mortgage principal, interest, taxes and insurance.

To calculate, simply multiply your gross monthly income (amount before taxes) by .28. Use this amount as a guide for how much house you can afford.

Example: You earn an annual salary of $70,000. Divide 70,000 by 12, giving you a monthly gross income of $5,833. Multiply that by .28, and you'll find you should spend no more than $1,633 each month on total housing costs.

The "36" part of the 28/36 rule refers to your overall debt, which shouldn't exceed 36 percent of your income. This is important to consider because other high monthly debt loads – such as car and credit card payments – impact the amount you can afford to spend on housing.

For first-time home buyers, the tricky part is knowing how much to budget for taxes and insurance. Your agent can assist you with this.

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Local Expert Updates

Matt Lippon Broker Associate (Real Estate Agent)

Matt Lippon

Broker Associate

712.330.0604

712.336.4967

Brooke Stecker Team Evans and Stecker (Real Estate Agent)

Brooke Stecker

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641.420.2172

712.336.4967

Aaron Jones RE/MAX Hall of Fame & Lifetime Achievement (Real Estate Agent)

Aaron Jones

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712.320.9442

712.336.4967

Janie Eick Real Estate Professional (Real Estate Agent)

Janie Eick

Real Estate Professional

712.339.0574

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Community Updates

Matt Lippon Broker Associate (Real Estate Agent)

Matt Lippon

Broker Associate

 712.330.0604

 matt@okobojipropertygroup.com

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Charlie Leissler

Residential Sales

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 charlie@sellboji.com

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Matt Lippon Broker Associate (Real Estate Agent)

Matt Lippon

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 712.330.0604

 matt@okobojipropertygroup.com

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