How Much House Can I Afford?

The amount a lender approves you for and the amount you're comfortable spending each month aren't always the same. Understanding how affordability works helps you set a realistic budget before you fall in love with a home.

What Lenders Look At

Income. Lenders review your gross monthly income and how stable it is, usually with pay stubs, W-2s, and tax returns.

Debt-to-income ratio (DTI). This compares your monthly debt payments, including your future house payment, to your gross monthly income. A common rule of thumb is to keep housing costs around 28 percent of gross income and total debts around 36 percent, though many loan programs allow higher ratios.

Credit score. Your score affects which loans you qualify for and the interest rate you receive. Even a small rate difference changes your monthly payment.

Down payment and savings. A larger down payment lowers your loan amount and payment. Lenders also like to see reserves in savings after closing.

What Goes Into Your Monthly Payment

Your house payment is usually more than principal and interest. Most payments include:

Principal and interest on the loan
Property taxes, which vary by county and location
Homeowner's insurance
Mortgage insurance, often required with smaller down payments
HOA dues, if the home is in an association

Common Down Payment Options

Conventional loans: some programs allow down payments as low as 3 percent for qualified buyers
FHA loans: as low as 3.5 percent down with more flexible credit requirements
VA loans: no down payment for eligible veterans and service members
USDA loans: no down payment for eligible buyers in qualifying rural areas, which include many communities in Central Missouri

Down payment assistance programs, including options through the Missouri Housing Development Commission, may help eligible buyers cover upfront costs.

Don't Forget the Costs of Owning

Beyond the mortgage, plan for utilities, maintenance, lawn care, and repairs. Setting aside a little each month for upkeep keeps small issues from turning into big expenses. Older homes and rural properties with wells, septic systems, and outbuildings may need a larger maintenance budget.

Upfront Costs to Budget For

In addition to your down payment, you'll need earnest money, closing costs, and money for inspections. Read our guide to buyer closing costs in Missouri.

Set a Budget You're Comfortable With

Just because you're approved for a certain amount doesn't mean you have to spend it all. Think about your other goals, such as saving, travel, retirement, and family plans, and choose a monthly payment that leaves room for life.

Next Step: Get Pre-Approved

The best way to know your real budget is to talk with a lender. Read getting pre-approved for a mortgage, or ask a Realty 365 agent to recommend a trusted local lender.