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How Much House Can I Afford?

What lenders will allow, and what leaves you comfortable.

Inputs

Car finance, student loans, minimum card payments.

5.5%
25years
1.5%/yr

Property tax, buildings insurance and any service charge, as a share of price per year.

Affordable price
222,657.67
ComfortableStandardStretchedOverextended
Monthly housing cost
1,400.00
Of that, mortgage
1,121.68
Of that, tax and insurance
278.32
Loan needed
182,657.67
Deposit as a share of price
17.96%
Comfortable target (80% of max)
178,126.14
max payment = (income × 36% − other debt); price from that payment

A deposit under 20% usually means mortgage insurance, which is not included above and typically adds 0.5 to 1.5% of the loan a year.

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Lenders generally allow housing costs up to 28% of gross income and total debt up to 36%. Whichever is lower sets your budget, which for anyone with a car loan is usually the second.

How to use Home Affordability Calculator

  1. Enter income and existing debts. Gross household income before tax, and current monthly debt payments.
  2. Add your deposit and a rate. The term and rate decide how much a given payment will borrow.
  3. Include running costs. Property tax and insurance are part of the payment lenders assess.

About working out how much house you can afford

Affordability is not one number but two, and the useful exercise is seeing how far apart they are. The first is what a lender will approve, which is governed by ratios: the long-standing guideline allows housing costs up to 28 percent of gross monthly income and all debt payments combined up to 36 percent. Whichever produces the smaller figure is the one that binds, and for anyone carrying a car loan or student debt that is reliably the second. This is why existing debt has such an outsized effect. It does not merely reduce what you have left over; it consumes part of the same allowance the mortgage has to fit inside. At typical rates, every hundred of monthly debt payment removes something like sixteen thousand of purchase price, which means clearing a car loan can move the achievable price more than another year of saving would. The second number is what leaves you solvent through an ordinary decade. Rates change, roofs fail, incomes pause. A payment at the top of what a lender allows has no absorption in it, and the difference between borrowing the maximum and borrowing eighty percent of it is usually a modest change in the property and a substantial change in how the next ten years feel. It is also worth remembering what the ratios exclude. Maintenance is commonly estimated at one percent of the property value a year, and it is real whether or not it appears in a lending calculation.

Frequently asked questions

What is the 28/36 rule?
A long-standing lending guideline: housing costs should stay under 28% of gross monthly income, and all debt payments together under 36%. The lower of the two limits applies, and for anyone carrying other debt it is almost always the 36% figure that binds.
Why does my existing car loan reduce the house I can buy so much?
Because it comes out of the same 36% allowance. Every 100 of monthly debt payment removes roughly 16,000 of purchase price at typical rates. Clearing a car loan before applying often moves the number more than another year of saving.
Should I borrow the maximum?
Rarely. The limit is what a lender will approve, not what leaves you able to absorb a rate rise, a boiler, or a period on one income. Aiming at roughly 80% of the maximum is where most of the comfort is, and it costs very little in practice.
Does this include mortgage insurance?
No. With a deposit under 20% most lenders require insurance that protects them rather than you, typically 0.5 to 1.5% of the loan each year. It usually falls away once enough equity is built, but it is a real cost while it lasts.
Is gross or net income used?
Gross, before tax — that is how the rule is defined and how lenders assess it. It is worth checking the payment against your actual take-home pay too, because the gap between the two varies enormously by country and by income level.

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