A guide for making one of the most important purchases of your life
Look closely at all your income sources to determine your total annual income. Then study your expenses and calculate how much you are truly spending each year.
Take your monthly income, before taxes, and multiply that by 28%. That’s how much you can afford each month.
Mortgage
Everything else
The higher your credit score, the lower your mortgage rate will be and the more house you can afford.
800-850
Excellent
740-799
Great
670-739
Good
580-669
Fair
300-579
Poor
Lower rate
Higher rate
Lenders will look at your debt-to-income ratio (DTI) to figure out the percentage of your income used to pay off debt.
Monthly
Debt
Income
should be less than
Minimum
2
%
Average for
first time buyers
6
%
Avoids PMI
20
%
Your lender may add private mortgage insurance (PMI) to your monthly payments to protect them should you default. Once you’ve reached 20% equity in your home, PMI payments typically end.
Home value
20%
No more PMI
Often overlooked, additional homeownership costs add up quickly. Be sure to include these in your budget.
Closing costs
3-5% of loan value
Home repair
4% of home value annually
Insurance
0.25% of home value annually
Property tax
Varies by location
5 ways to improve your credit score
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What to consider when buying your first home
16 resources
What is private mortgage insurance (PMI)?
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Fixed vs. adjustable rate mortgages
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5 stages of the homebuying process
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6 first-time homebuyer mistakes to avoid
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