Skip to main content

Understanding Home Affordability: A Guide for Prospective Homebuyers

When it comes to buying a home, one of the most crucial questions to ask yourself is, “How much home can I afford?” It’s a question that can feel overwhelming, but with the right approach and information, you can navigate this aspect of home buying with confidence. At Better Rate Mortgage, we’re here to help you understand the factors that influence home affordability and guide you through the process.

Key Factors Influencing Home Affordability

1. Your Income and Debt-to-Income Ratio

Your income is the foundation of your home-buying budget. We typically recommend that your monthly mortgage payment should not exceed 35% of your gross monthly income. Additionally, your total debt payments (including your mortgage, car loans, student loans, and credit card payments) should not exceed 45% of your gross income. This is known as the debt-to-income (DTI) ratio, and it’s a crucial metric that lenders use to determine how much mortgage you can afford. These percentages are only rough guidelines, once we analyze your goals, we will come up with a customized plan for you.

2. Down Payment

The size of your down payment significantly affects your mortgage affordability. A larger down payment reduces the loan amount, leading to lower monthly payments, but is not always the best option. You can put as little as 1% down on conventional mortgages, 0% down on VA and USDA mortgages, and 3.5% on FHA mortgages. There are also other low down payment options, especially for first-time homebuyers.

3. Interest Rates

Mortgage interest rates play a critical role in determining your monthly payment. At Better Rate Mortgage we pride ourselves on the competitive nature of our company and our market knowledge, we stay on top of the market and educate you to make so we can make the best decision together!

4. Loan Term

The term of your mortgage also affects your affordability. A 30-year mortgage typically has lower monthly payments compared to a 15-year mortgage, although you’ll pay more interest over the life of the loan. We help you evaluate which term aligns best with your financial goals and monthly budget.

5. Property Taxes and Insurance

Don’t forget to factor in property taxes and homeowners’ insurance. These costs vary by location and can add a substantial amount to your monthly payment. Use our online calculator to estimate these expenses:

6. HOA Fees

If you’re buying a home in a community with a homeowner’s association (HOA), you’ll need to budget for monthly HOA fees. These fees cover the maintenance of common areas and amenities but can vary widely.

Calculating Your Home Affordability

Step 1: Determine Your Gross Monthly Income

Include all sources of income such as your salary, bonuses, and any other income streams.

Step 2: Calculate Your Monthly Debt Payments

List all your monthly debt obligations, including car loans, student loans, and credit card payments.

Step 3: Estimate Your Monthly Mortgage Payment

Use the 35/45 rule as a guide. Your monthly mortgage payment (including taxes and insurance) should be no more than 35% of your gross monthly income, and your total debt payments should not exceed 45%.  Remember this is just a guide, we will help you determine what makes the most sense for you.

Step 4: Consider Down Payment and Loan Terms

Adjust your calculations based on your available down payment and the mortgage term you’re considering.

Tools to Help You

Online Mortgage Calculators

Take advantage of our online mortgage calculators to get a clear picture of what you can afford. These tools allow you to input different down payments, loan terms, and interest rates to see how each factor affects your monthly payment.


Getting pre-approved for a mortgage can give you a realistic idea of how much home you can afford. It also shows sellers that you’re a serious buyer, which is the only way to get your offer accepted in a competitive market.  Reach out to learn more about our $5,000 Seller Guarantee to really make your offer stand out.

Why Choose Better Rate Mortgage?

Understanding home affordability is crucial for making informed decisions during your home-buying journey. By considering your income, debt, down payment, interest rates, and additional costs, you can determine a realistic budget and confidently move forward in your search for the perfect home.

At Better Rate Mortgage, we’re committed to helping you every step of the way. Our team of experts provides personalized advice and the best mortgage options tailored to your needs. Let’s make your dream of homeownership a reality.  We’re here to ensure that you not only understand your affordability but also get the most favorable rates and terms for available.

Reach out to us today and let our team at Better Rate Mortgage open the door to more.

For more information, tools, and resources, visit Better Rate Mortgage.

Published 6/2/24

Open the door to more.

Get Started Today

Whether you’re purchasing your first home or taking cash out to make your dream home even dreamier, the door is open. Welcome to Better Rate Mortgage.

Apply Now
Couple laughing and holding keys to new home