Decide how much you want to spend on a home

What to do now

Explore interest rates

The interest rate you receive is one of the most important factors in determining the home price you can afford. It’s important to know the range of rates you can expect, and the impact that rate has on your home price. 

• Explore the range of interest rates you can expect, based on your information.
  
• Choose a realistic interest rate to use in calculating your affordable home price.
  

Figure out how much you can afford for monthly principal and interest

The loan amount you can afford depends on how much you can afford to pay back each month. 

• If you haven’t already, decide how much you can afford to spend on a total monthly home payment.
  
• Your total monthly home payment includes several costs of homeownership. Your principal and interest payment is the part of your total monthly payment that pays back your loan and is used to calculate your affordable loan amount. Make sure you understand the difference.
  
• Estimate how much you expect to pay monthly in property taxes and homeowner’s insurance. Browsing for-sale listings or talking with family, friends, or a real estate agent in your area is a good way to get a rough estimate.
  
• Subtract your estimated taxes and insurance from your target total monthly home payment to get the amount you can afford to pay monthly for principal and interest.
  

Calculate your affordable loan amount

There are many mortgage calculators available online. You can use our simple calculator, or try searching online for "mortgage calculator." How you calculate your affordable loan amount depends on the kind of calculator you use:

• Most mortgage calculators ask you to input the loan amount, loan term (length) in years, and interest rate to find out the monthly principal and interest payment.
  
• Start with a ballpark estimate for the loan amount, and see whether the resulting principal and interest payment is more or less than the amount you can afford for principal and interest. Adjust the loan amount up or down until you find the loan amount that corresponds to your affordable principal and interest payment.
  
• Some mortgage calculators allow you to input the interest rate and the principal and interest payment amount to calculate the maximum loan amount directly. 
  

Estimate your affordable home price

Add your down payment amount to your calculated loan amount to get an estimate of the home price that will be affordable for you.

What to know

Your home price estimate is not perfect, and it’s not set in stone

Think about your home price estimate as a good starting place for deciding how much you can comfortably afford. You had to make some assumptions to get here. As you move forward and gather more information, you can go back and refine those assumptions. Try out different scenarios – for example, a different down payment amount – and make adjustments.

Your down payment amount affects how much you can afford

If your down payment amount is less than 20% of your target home price, you will likely need to pay for mortgage insurance.  Mortgage insurance adds to your monthly costs.  You may need to reduce your target home price accordingly if you plan to put less than 20 percent down.  In the next phase, explore your loan choices to learn more about how your down payment and loan choices affect how much you can afford.

Most mortgage calculators start by showing you a standard 30-year fixed rate loan

This is fine for estimating your home price at this stage. In the Explore loan choices phase, you'll learn more about different options for your loan and how to get the best overall deal for you.

The home price you can afford depends on four key factors

Change any one of these four factors, and you may be able to afford a more expensive or less expensive home:

1. How much you can pay monthly.
2. How much you can pay up front in a down payment.
3. The kind of loan you get, for example a 30-year fixed, 30-year adjustable, 15-year fixed, etc.
4. The interest rate and terms of your loan.