How to use this calculator

This calculator allows you to plug in the major variables that impact how much you can afford to borrow: the size of the loan, how much you have for a down payment, the loan’s interest rate and its term in years. Start by adding the figures you have for those factors.

A second drop-down menu will allow you to input your other monthly liabilities, or debts. It’s important to be accurate with these figures because this has a major influence on how much you can actually afford.

The third drop-down gives you space to account for your other monthly expenses, including taxes, insurance or regular fees.

Once you’ve filled in all the numbers, the calculator will show you how much income you’ll need to afford the size of loan you’re looking at, as well as how much your total monthly payment (including your principal, interest, taxes and insurance) would be.

But a few other factors also will help determine whether you're able to land the type of home and the mortgage amount you have in mind.

Loan limits

The majority of mortgages in the U.S. are called "conforming" loans and have limits that can restrict your ability to buy a property with a higher purchase price.

The lenders will eventually sell the loans to government-sponsored mortgage giants Fannie Mae and Freddie Mac, so the mortgages must conform to — that is, meet — caps set by the Federal Housing Finance Agency, which regulates the two companies.

For 2022, the conforming loan limit in most parts of the country is $647,200 for a single-family home. In America's costliest counties, the loan ceiling is $970,800.

Many "nonconforming" mortgages are called jumbo loans and have no limits. But others, including FHA loans backed by the Federal Housing Administration, do have caps. In 2022, FHA's nationwide limit for a single-family home is $970,800.

Down payment

One way to make a more expensive home and a larger loan more affordable is by increasing your down payment on the house.

Not only will that lower your principal, and the interest you’ll pay on the principal, but if you put down more than 20%, you also can avoid having to pay private mortgage insurance, or PMI.

PMI can add a few hundred dollars a month to your mortgage payment. Keeping PMI out of your monthly expenses will free up cash and allow you to focus on other financial responsibilities.

Loan terms

The most common mortgage loan terms are 15 and 30 years. But you’ll also find loans with terms of five, 10 and 20 years.

A longer-term loan will allow you to pay less principal every month, but the flipside of that is that you will end up paying more in interest on the same loan amount over time.

Interest rates

The higher your interest rate, the more you’ll end up paying over the life of your loan. To find the lowest interest rate possible, you should shop around and review loan offers from a few different lenders.

Comparing offers ensures you get the best mortgage rate.

Monthly liabilities

All of your regular debts, like your student loan, your credit cards and your auto loan, count toward your monthly liabilities. They also include other regular payments, like child and spousal support, or personal loans.

When it comes to your liabilities, some of these may be more fixed than your other expenses. But you’re not without options. We’ll get into how you can potentially lower your monthly liabilities a little further down.

Monthly housing expenses

Most lenders will require you keep your housing expenses down to 28% of your pretax income. And with all your other monthly debts and expenses added in, that should account for a maximum of 36% of your income.

Other than your total monthly mortgage payment and its associated costs, your housing expenses will include homeowner’s insurance and your property tax, both of which will be calculated as a set percentage of your home’s value.

And if you’re buying a condo or townhouse with a homeowner’s association, called an HOA, there will be monthly fees associated with that.

All these costs need to be factored into your monthly budget. And while you can shop around for insurance rates, or properties with lower HOA fees, you’ll have less negotiating room. Your only way to significantly lower these costs is to buy a less expensive home.

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How to afford a bigger mortgage

If you’ve run through the calculator a few times and you’re still not satisfied with the results, you have options. There are a few different ways you can further improve your financial standing to afford the mortgage you want.

The more debt you carry and the lower your credit score, the riskier you’re going to appear to potential lenders. So if you want to make yourself a more attractive borrower, you’ll need to lower your debt-to-income ratio and improve your credit score.

But even with a few adjustments, it’s still crucial you stick to a budget that's realistic for your household income.

Start clearing your debt

When a lender is evaluating your mortgage application, your debt will be a big factor. They’ll use a tool called the debt-to-income ratio to examine how much you owe every month and compare that against your gross (pretax) monthly income. When a lender is evaluating your mortgage application, your debt will be a big factor. They’ll use a tool called the debt-to-income ratio to examine how much you owe every month and compare that against your gross (pretax) monthly income.

If your ratio is higher than 43%, lenders will consider you a riskier borrower, significantly lowering your chances of securing a loan with favorable terms, let alone any loan at all.

One way to lower your monthly debt liability is through debt consolidation. By taking out a single, lower-interest loan to pay off your other high-interest debts, you can make paying down what you owe more manageable.

Improve your credit score

Your credit score is another of the most important factors lenders will consider when evaluating you for a mortgage loan.

Details from your credit report are used to come up with a number for your score. There are several things that will impact your credit score, but your credit history is at the top of the list.

If you have a history of not making payments on your credit cards or other debts, that’s going to have a negative impact on your rating.

A better rating will get you access to more favorable interest rates and loan terms, opening up your possibilities as a homebuyer.

Stay within your salary

This is the only factor you shouldn’t try to find a way around when you’re figuring out how much house you can afford.

And just because you can qualify for a mortgage of a certain value, doesn’t mean you should take it. Mortgage lenders will almost always approve you for a larger loan than you can reasonably afford.

Why is that?

Well, the more you borrow, the more you’ll end up paying in interest. That motivates lenders to offer you more than you should take on.

So even if you’re potentially looking at a big boost in your salary down the line, it’s best to just use the income you’re currently earning. A wise borrower runs the numbers and works within their own budget, even if that means borrowing less than what is available to you.

Where to go from here

After you’ve run a few scenarios through the mortgage income calculator, you should have a good idea of what you can afford to take out in a home loan.

And if you were left hoping for a little more, you also now know the steps you can take to improve your financial standing.

When you buy a home, your goal should be to ensure it doesn’t become a financial burden down the road, or force you to live outside of your means from the get-go.

You may not be able to buy your dream home right away, but with a little work, time and investment, you’ll no doubt find the reality of owning a place you can afford is more satisfying than the original dream.