Published 5:50 PM EDT Jun 17, 2019The price of a house can be intimidating, especially to first-time homebuyers.The national median listing price set a record of $310,000 in April, according to Realtor.com. At the same time, most first-time buyers are searching for a home priced at $150,000 or less, according to a recent survey from LendingTree.That kind of discrepancy could chase many would-be homebuyers back to the rental market, scared there's no way they can buy a home.But there are many factors in your control that can help you afford a home purchase.

1. How Much House Can I Afford Calculator

Some may require advanced preparation, such as saving and improving your creditworthiness. GETTY IMAGESIn other cases, you just need to be open to more options when it comes to mortgages and houses.Here are ways to afford your new home. Find a down paymentThe more you contribute to the purchase of your home, the smaller your monthly mortgage payment will be.

If you’re able to cough up 20% of the purchase price, you’ll also avoid private mortgage insurance that can add to the monthly cost.Money tips: 5 savings mistakes you should stop making right nowInvesting guru: Try these 2 stocks that will cut you a check every monthBefore you start your house hunt, add up what you have for a down payment, including a job bonus, your tax refund, savings and gifts from family. If you don’t have a lot – or even anything – for a down payment, all is not lost.

That home payment assumes a 30-year mortgage at current rates, and includes 1% property tax and 0.4% for homeowners insurance. It does not factor in private mortgage insurance, which you'll owe if your down payment is less than 20% of the purchase price. You should reduce the maximum target if you have other savings needs.

Some home buyers can qualify for no or low down payment options from the Veterans Administration, Agriculture Department and more. Reduce your DTIAnother key factor to qualify for a mortgage – and afford your home – is the debt-to-income ratio (DTI). Lenders add up your monthly debt payments including your future mortgage payment and calculate how much that makes up of your monthly gross income.The higher the ratio, the riskier the borrower.

If your DTI is too high, you might not qualify at all. Every lender sets its own DTI requirement. If your DTI is getting close to the edge, you need to reduce your monthly debt obligations. Refinance car loans and consolidate other debts to lower monthly payments.Golden years: Why start a business after you retire?

To earn money, keep sharp and pass on your skillsWhen it comes to credit card debt, forget conventional personal finance wisdom of paying down the debts with the highest rates first. In this scenario, you want to pay off debts that have lowest balances and highest monthly payments to immediately reduce your DTI.“This allows you to get the biggest bang for your buck in bumping up your borrowing power,” says Scott Sheldon, branch manager for New American Funding in California. Sage v25 data service system requirements.

Raise your FICO scoreBefore shopping for a home, it pays to work on improving your credit score before the big purchase. Because it translates into savings.First, lenders give lower mortgage rates to borrowers with higher credit scores. That means you’ll pay less interest over the life of the loan and your monthly payment will be smaller.For instance, if you have a credit score of 760 or higher, you qualify for a 3.86% rate on a $216,000 30-year, fixed-rate mortgage, according to FICO. That’s a $1,014 mortgage payment. But if your score is 650, then your rate goes up to 4.9% with a monthly payment of $1,147.Similarly, your credit score affects the premium you pay for private mortgage insurance, or PMI, which is required if you put down less than 20% of the purchase price.For example, on a $250,000 home with 10% down, the monthly PMI payment would be $71.25 if your credit score is 750. But if your score is 650, then the PMI payment is almost a $100 more at $170.63 per month, according to John Stearns, senior mortgage originator at American Fidelity Mortgage in Wisconsin.“If you have a bad credit score, you’re dead in the water,” Stearns says.The fastest way to improve your credit score: Set up automatic bill payments so you’re never late. Reduce or eliminate the balances on your credit cards to 30% or less of the credit lines.

And get rid of any errors on your credit report. Explore all loansDon’t fixate on a specific mortgage loan program.

Instead, find out all the options available to you from a professional mortgage professional before you even start your search. In fact, it might not be a bad idea to know you qualify for more than one mortgage as you shop around, says Sheldon. Adjust expectationsThe home you can afford may not be one that checks all the boxes, especially if you’re a first-time buyer in a market with limited entry-level homes.

It’s smart to prioritize your absolute must-haves from your would-like-to-haves. Other quick tipsInterest rate: Another way to lower your mortgage rate – and reduce your monthly payment – is to buy down the rate, says Pava Leyrer, COO of Northern Mortgage in Michigan. You can do a permanent buydown, where the lower interest rate lasts the life of the loan.Or, you can do a temporary buydown where the lower rates last a couple of years. Both require upfront payments at closing. In some cases, the seller will pay for the buydown as a concession.PMI: You can also eliminate the monthly PMI premium by prepaying the mortgage insurance upfront.

The prepayment can be financed into the loan but results in a lower monthly payment than one with monthly PMI.Insurance and taxes: What you pay in taxes and insurance can differ by zip code and county, so a house one street over may make a big difference to your monthly payment. Compare insurance rates online and local property taxes.

When budgeting, bet that these costs will go up in the future, says Leyrer.

Our home affordability tool calculates how much house you can afford based on several key inputs: your income, savings and monthly debt obligations, as well as the mortgages available in your area. How We Calculate Your Home Value. First, we calculate how much money you can borrow based on your income and monthly debt payments. Based on the recommended debt-to-income threshold of 36% and looking at actual mortgages available in your neighborhood for those with your credit score, we then can calculate your total borrowing potential. Next, we look at your savings to see what kind of down payment you can afford. Using your borrowing potential and what you have available for a down payment we can calculate a comfortable home value for you.read more. Mortgage data: We use current mortgage information when calculating your home affordability.Closing costs: We can calculate exactly what closing costs will be in your neighborhood by looking at typical fees and taxes associated with closing on a home.Homeowners insurance: We assume homeowners insurance is a percentage of your overall home value.Debt-to-income threshold (The 36% Rule): We recommend that you do not take on a monthly home payment which is more than 36% of your monthly income.

Our tool will not allow that ratio to be higher than 43%.Mortgage Type: The type of mortgage you choose can have a dramatic impact on the amount of house you can afford, especially if you have limited savings. FHA loans generally require lower down payments (as low as 3.5% of the home value), while other loan types can require up to 20% of the home value as a minimum down payment.read more. Michelle Lerner Home BuyingAs SmartAsset’s home buying expert, award-winning writer Michele Lerner brings more than two decades of experience in real estate.

Michele is the author of two books about home buying: “HOMEBUYING: Tough Times, First Time, Any Time,” published by Capitol Books, and “New Home 101: Your Guide to Buying and Building a New Home.” Michele’s work has appeared in The Washington Post, Realtor.com, MSN and National Real Estate Investor magazine. She is passionate about helping buyers through the process of becoming homeowners. The National Association of Real Estate Editors (NAREE) honored Michele in 2016 and 2017 with the award for Best Mortgage or Financial Real Estate Story in a Daily Newspaper.read more. Key Takeaways for Average Home Values 1 bedroom home: $ -,- 2 bedroom home: $ -,- 3 bedroom home: $ -,-Real Estate TaxesThe average annual property tax in is.-%. For a home with an assessed value of $ -,- this would be an annual cost of $ -,-. Taxes in are -% higher/lower than the national average.Crime Data in Violent Crimes- violent crimes per 1,000 people were reported in 2014.

This is - times the national average.Property Crimes- property crimes per 1,000 people were reported in 2014. This is - times the national average.

How Much House Can I Afford?When determining what home price you can afford, a guideline that’s useful to follow is the 36% rule. Your total monthly debt payments (student loans, credit card, car note and more), as well as your projected mortgage, homeowners insurance and property taxes, should never add up to more than 36% of your gross income (i.e. Your pre-tax income).While buying a new home is exciting, it should also provide you with a sense of stability and financial security.

You don’t want to find yourself living month to month with barely enough income to meet all your obligations:, utilities, groceries, debt payments – you name it.In order to avoid the scenario of buying a house you truly can’t afford, you’ll need to figure out a housing budget that makes sense for you. How Much House Can You Afford? This table used $600 as a benchmark for monthly debt payments, based on average $400 car payment and $200 in student loan or credit payments. The mortgage section assumes a 20% down payment on the home value. The payment reflects a 30-year fixed-rate mortgage for a home located in Kansas City, Missouri.

Plug your specific numbers into the calculator above to find your results. Since interest rates vary over time, you may see different results. Monthly Pre-Tax IncomeRemaining Income After Average Monthly Debt PaymentMaximum Monthly Mortgage Payment (including Property Taxes and Insurance) with the 36% RuleEstimated Home Value$2,000$1,400$120N/A$3,000$2,400$480$79,000$4,000$3,400$840$138,000$5,000$4,400$1,200$197,000$6,000$5,400$1,560$256,000$7,000$6,400$1,920$313,000$8,000$7,400$2,280$360,000$9,000$8,400$2,640$416,000$10,000$9,400$3,000$523,000In practice that means that for every each month, you should dedicate no more than 36 cents to paying off your mortgage, student loans, credit card debt and so on. (Side note: Since property tax and insurance payments are required to keep your house in good standing, those are both considered debt payments in this context.) This percentage also known as your, or DTI. You can find yours by dividing your monthly debt by your monthly pre-tax income. The 36% Rule The 36% rule applies to your total debt.

This includes your mortgage, student loans, credit card debt, etc Pre-tax Monthly Income36% Limit for Total Monthly Debt$2,000$720$3,000$1,080$4,000$1,440$5,000$1,800$6,000$2,160$7,000$2,520$8,000$2,880$9,000$3,240$10,000$3,600Most banks don’t like to make loans to borrowers with more than 43% debt-to-income ratios. Although it’s possible to find lenders willing to do so (but often at higher interest rates), the thinking behind the rule is instructive.If you are spending 40% or more of your pre-tax income on pre-existing obligations, a relatively minor shift in your income or expenses could wreak havoc on your budget.Banks don’t like to lend to borrowers who have a low margin of error.

That’s why your pre-existing debt will affect how much home you qualify for when it comes to securing a mortgage.But it isn’t only in your lender’s interest to keep this rule in mind when looking for a house — it’s in yours too. Since lenders tend to charge higher interest rates to borrowers who break the 36% rule, you’ll probably end up spending more on interest if you go for a house that places you beyond that limit. Plus, you may have trouble maintaining your other financial obligations, including building up your emergency fund and saving for retirement. How Much Down Payment Do I Need?Another key number in answering the question of how much home you can afford is your. How Down Payment Size Impacts Home Equity The down payment example uses a $250,000 house for each scenario. PercentageDown PaymentHome PriceHome Equity20%$50,000$250,05%$37,500$250,00%$25,000$250,0%$12,500$250,0%$0$250,000$0The rule of thumb still stands: 20% of the home value is the ideal amount of money for a down payment. This amount buys you, which helps secure the loan.

When you don’t have a least 20% to put down, you have to find alternate means to secure the mortgage.This can mean private (PMI), which is an added monthly charge to secure your loan. If you don’t have enough money for a down payment, many lenders will require that you have mortgage insurance.

You’ll have to pay your monthly mortgage as well as a monthly insurance payment, so it’s not the best option if your budget is tight.You’ll stop paying PMI when your mortgage reaches about 78% of the home’s value. While certain homebuyers can qualify for little or no down payment, through VA loans or other 0% down payment programs, most homeowners who don’t have a large enough down payment will have to pay the extra expense for PMI. How Much Should I Have Saved When Buying a Home?Lenders generally want to know you will have a cash reserve remaining after you’ve purchased your home and moved in, so you don’t want to empty your on a down payment.Having some money in the bank after you buy is a great way to help ensure that you’re not in danger of default and foreclosure. It’s the buffer that shows mortgage lenders you can cover upcoming mortgage payments even if your financial situation changes.While maintaining a debt-to-income ratio under 36% protects you from minor changes in your finances, a cash reserve protects against major ones.At a minimum, it’s a good idea to be able to make three months’ worth of housing payments out of your reserve, but something like six months would be even better.

That way, if you experience a loss of income and need to find a new job, or if you decide to sell your house, you have plenty of time to do so without missing any payments. Cash Reserve and Your Ability to Pay Your Mortgage This table is for a $250,000 home in Kansas City, Missouri. The mortgage payments assume 20% down payment and include property tax and home insurance in the monthly total. Cash ReserveMonthly Mortgage PaymentMonths$5,000$1,4253.5$10,000$1,4257$15,000$1,42510.5$20,000$1,42514$25,000$1,42517.5Think of your cash reserve as the braking distance you leave yourself on the highway – if there’s an accident up ahead, you want to have enough time to slow down, get off to the side or otherwise avoid disaster.Your reserve could cover your mortgage payments — plus insurance and — if you or your partner are laid off from a job. It gives you wiggle room in case of an emergency, which is always helpful.

You don’t want to wipe out your entire savings to buy a house. Homeownership comes with unexpected events and costs (roof repair, basement flooding, you name it!), so keeping some cash on hand will help keep you out of trouble. What Home Can I Buy With My Income?A quick recap of the guidelines that we outlined to help you figure out how much house you can afford. The first is the 36% debt-to-income rule: Your total debt payments, including your housing payment, should never be more than 36% of your income.

The second is your down payment and cash reserves: You should aim for a 20% down payment and always try to keep at least three months’ worth of payments in the bank in case of an emergency.We’ll take a look at a few hypothetical homebuyers and houses to see who can afford what. Three Homebuyers' Financial Situations While you may not see yourself exactly reflected by these homebuyers, it can be helpful to see a general range of who can afford what home. HomebuyersAgesMonthly IncomeMonthly Debt PaymentsSavingsPaul & Grace40, 39$3,500$250$10,000Teresa29$7,250$500$40,000Martin54$40,000none$185,000House #1 is a 1930s-era three-bedroom ranch in Ann Arbor, Michigan.

This 831 square-foot home has a wonderful backyard and includes a two-car garage. The house is a deal at a listing price of just $135,000. So who can afford this house?

Paul & Grace, Teresa and MartinAnalysis: All three of our homebuyers can afford this one. For Teresa and Martin, who can both afford a 20% down payment (and then some), the monthly payment will be around $800, well within their respective budgets. Paul and Grace can afford to make a down payment of $7,000, just over 5% of the home value, which means they’ll need a mortgage of about $128,000. In Ann Arbor, their mortgage, tax and insurance payments will be around $950 dollars a month.

Combined with their debt payments, that adds up to $1,200 – or around 34% of their income.House #2 is a 2,100-square-foot home in San Jose, California. Built in 1941, it sits on a 10,000-square-foot lot, and has three bedrooms and two bathrooms. It’s listed for $820,000, but could probably be bought for $815,000. So who can afford this house? MartinAnalysis: While this one’s a little outside of our other homebuyers’ price range, Martin can make it happen.

How Much House Can I Afford Calculator

Using the 36% rule, Martin’s monthly housing budget is around $14,000. The mortgage, property tax and insurance on this property will total somewhere around $4,100 – so he could actually afford to pay more on a monthly basis. For a house this expensive, lenders require a larger down payment – 20% of the home value – so Martin is limited to a house worth five times his savings (minus that cash reserve equaling three months’ payments).House #3 is a two-story brick cottage in Houston, Texas. With four bedrooms and three baths, this 3,000-square-foot home costs $300,000. Teresa and Martin can afford this home.Analysis: Martin can easily afford this place, while it is a bit harder for Teresa.

Assuming she makes a down payment of $27,300, or just under 10%, her monthly housing payments will be $2,110. Add in the $500 student loan payments she’s making each month, and you’ve got total debt payments of $2,610, which is exactly 36% of her income. Plus, even after she pays her down payment and all the closing costs, she’ll have around $7,800 left in savings, enough for four months’ worth of housing payments. How Much Mortgage Can I Afford?Even though Martin can technically afford House #2 and Teresa can technically afford House #3, both of them may decide not to. If Martin waits another year to buy, he can use some of his high income to save for a larger down payment.

Teresa may want to find a slightly cheaper home so she’s not right at that maximum of paying 36% of her pre-tax income toward debt.The problem is that some people believe the answer to “How much house can I afford with my salary?” is the same as the answer to “What size mortgage do I qualify for?” What a bank (or other lender) is willing to lend you is definitely important to know as you begin house hunting. But ultimately, you have to live with that decision. You have to make the mortgage payments each month and live on the remainder of your income.So that means you’ve got to take a look at your finances. The factors you should be looking at when considering taking out a mortgage include:.

Income. Credit score.

Existing debt. Down payment and savings.

Mortgage term. Private mortgage insurance. Local real estate marketPlugging all of these relevant numbers into a home affordability calculator (like the one above) can help you determine the answer to how much home you can reasonably afford.But beyond that you’ve got to think about your lifestyle, such as how much money you have leftover for travel, retirement, other financial goals, etc. You might find that you don’t want to buy the most expensive home that fits in your budget. Why You Should Consider Buying Below Your BudgetThere is something to be said for the idea of not maxing out your credit possibilities.

If you look at houses that are priced somewhere below your maximum, you leave yourself some options. For one, you will have room to bid if you end up competing with another buyer for the house. As an alternative, you’ll have money for renovations and upgrades. A little work can transform a home into your dream house — without breaking the bank.Perhaps more importantly, however, you avoid putting yourself at the limits of your financial resources if you choose a house with a price lower than your maximum.You will have an easier time making your payments, or (better yet!) you will be able to pay extra on the principal and save yourself money by paying off your mortgage early. Why You Should Wait to Buy a HomeAlong the same lines of thinking, you might consider holding off on buying the house.The bigger the down payment you can bring to the table, the smaller the loan you will have to pay interest on. In the long run, the largest portion of the price you pay for a house is typically the interest on the loan.In the case of a 30-year mortgage (depending, of course, on the interest rate) the loan’s interest can add up to three or four times the listed price of the house (yes, you read that right!). For the first 10 years of a, you could be paying almost solely on the interest and hardly making a dent in the principal on your loan.That’s why it can make a significant difference if you make even small extra payments toward the principal, or start with a bigger down payment (which of course translates into a smaller loan).If you can afford a rather than a 30-year mortgage, your monthly payments will be higher, but your overall cost will be drastically lower because you won’t be paying nearly so much interest.

30-Year vs 15-Year Mortgage Payments Using current mortgage rates, the chart shows a comparison of 30-year vs 15-year fixed-rate loans for a $250,000 home, with a 20% down payment. The monthly payments for the $200,000 mortgage includes homeowners insurance and property tax for Kansas City, Missouri. Loan TypeMonthly Payments30-year fixed-rate loan$1,32715-year fixed-rate loan$1,794That sounds great, but it’s not always the best option either. If the 15-year mortgage puts you uncomfortably close to your maximum — meaning you won’t have any room in your budget for emergencies or extras — you could always lock into a 30-year mortgage while making a commitment to yourself to make payments the size of the 15-year plan unless there’s a financial emergency.If you go with this plan it’s important to make sure your mortgage terms don’t include a penalty for paying off the loan early. This is known as a pre-payment penalty and lenders are required to disclose it.

So What Do I Do? Should I Buy a Home?The answer to that question depends on your financial status and your goals. Just because a lender is willing to give you money for a home doesn’t necessarily mean that you have to jump into homeownership. It’s a big responsibility that ties up a large amount of money for years.It’s important to remember that the mortgage lender is only telling you that you can buy a house, not that you should.

Only you can decide whether you should make that purchase. Next StepsRead more on specialized loans, such as. Or, take a look at the in the U.S.Ready to get the ball rolling? We have, right this way.Already know where you’re planning to buy? Check out what will look like. Tips to Improve Your Debt-to-Income RatioIf you want to buy a home but you are carrying too much debt to qualify for a mortgage, you may first want to focus on improving your debt-to-income ratio.

There aren’t any tricks to decreasing your DTI. You have three main avenues to improve your DTI:. Consolidate debt. Pay off debt. Increase incomeIf is holding you back from getting to 36%, you might want to consider a balance transfer. You can transfer your credit card balance(s) to a and pay down your debt before the offer expires.This means your money is going toward your actual debt and not interest on that debt. It’s important to remember that if you don’t manage to pay down the debt before the 0% APR offer ends, you might end up with a higher interest rate on your debt than you had before.But if you can swing a balance transfer it might be able to help you fast-track your debt payment and get you to the debt-to-income ratio you need to qualify for a home purchase.Your other two options, pay off debt and increase income, take time.

Perhaps you need to make a budget and a plan to knock out some of your large student or car loans before you apply for a mortgage. Or you wait until you get a raise at work or change jobs to apply for a mortgage.There isn’t an easy way to a lower DTI, unfortunately. All three options take time, as well as planning to execute. But, think of it this way, you’ll improve your chances for a favorable mortgage, which is usually 30 years of your life. Waiting a few years to put yourself in a better position is just a fraction of time compared to the many years you’ll spend paying your monthly mortgage bill. Methodology There’s a lot more to home affordability than the price a homebuyer agrees to pay the seller.

To find the most affordable places to buy a home, SmartAsset took a holistic approach, considering closing costs, real estate taxes, homeowners insurance and mortgage rates in our analysis.Specifically, we found the total cost over five years of these four expenses—closing costs, taxes, insurance and mortgage payments—for the average home in every county in the U.S., and every city with a population greater than 5,000. We then took that five-year cost as a proportion of median household income in each county and city to determine affordability.The most affordable cities and counties were those in which total housing costs on an average house accounted for the smallest proportion of the median income.Sources: Bankrate, government websites, SmartAsset.