Buying your first home is an exciting milestone, but figuring out how much you can afford can be confusing. Understanding your homebuying budget is essential to avoid financial strain and leave enough room for other financial goals. Let’s break down the key factors that determine your home affordability.

Understanding your homebuying budget

Determining your homebuying budget involves careful consideration of your financial situation, expenses and long-term goals. If you’re wondering, “How much home can I afford?”, here are two things to think about first:

• The 28/36 rule: This generally accepted advice says you should aim to keep total housing expenses below 28% of your gross monthly income, and if you have other debt, the total of all debt shouldn’t exceed 36% of your gross monthly income.
• Your monthly budget: Ensure your mortgage payment will fit comfortably within your budget without compromising other financial goals. Consider your regular monthly expenses, such as utilities, groceries, transportation and savings. Learn more about budgeting basics.

When you’re ready to apply for financing, lenders will consider these factors:

Income and debt-to-income ratio
Your gross monthly income is the starting point. Lenders will look at your income to determine how much you can borrow. Your debt-to-income (DTI) ratio compares your monthly debt payments to your gross monthly income. Lenders typically prefer a DTI ratio of 36% or less, but some allow up to 43%. To calculate your DTI, divide your total monthly debt payments by your gross monthly income and multiply by 100 to get a percentage.

Down payment funds
The amount you can put down upfront affects how much you can afford. A larger down payment reduces the loan amount and can lower your monthly payments. While a 20% down payment is ideal to avoid private mortgage insurance (PMI), there are options for lower down payments. We offer a range of mortgage options, including fixed-rate mortgages, adjustable-rate mortgages (ARMs), FHA loans, VA loans, Professional Home Loans and more. Check out our 100% Financing Mortgage.^*

Credit score
Your credit score impacts the interest rate on your mortgage. A higher credit score can qualify you for lower rates, reducing your overall cost. Do these four things to get your credit mortgage-ready.

Ready to take the next step?

Our Real Estate Loan Team can help you determine your homebuying budget and discuss your mortgage options. Start your journey to homeownership today!

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Mortgages are subject to credit approval. Grow Financial mortgage loans are valid for the purchase or refinance of owner-occupied residential properties in the states of Florida, South Carolina, North Carolina, Georgia, Alabama and Tennessee including single-family detached, condominiums and townhomes. Not valid for the purchase of investment properties. Grow Financial mortgage loan rates are updated daily and available at growfinancial.org.
^*Subject to credit approval. Certain restrictions apply. 100% financing is not available for Home Equity Loans or refinances. Private mortgage insurance required. 100% financing of verified property value at time of financing. Borrower must make a 1% contribution to down payment or closing costs for such items as inspections, appraisals, title insurance etc. Gift funds allowed.

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• Home Education