How much house can I afford?

Defining true home affordability in Indiana and Michigan

Owning a home is about having a place to call your own. But in a market with changing rates and prices, the financial side can feel heavy. You might find a house you love, plug the numbers into a calculator, and see a monthly payment figure. But does that number tell the whole story?

At Everwise Credit Union, we put people first. We want to help you figure out what you should borrow to live the life you want, not just what a bank says you can borrow. Here is how to determine true affordability.

What is the difference between mortgage qualification and affordability?

Qualification is what a lender thinks you can pay. Affordability is what your budget can actually handle.

When lenders review your application, they assess risk using your Debt-to-Income (DTI) ratio. Lenders generally look for a DTI between 36% and 43%. This means your total monthly debt payments, including the new mortgage, should be less than 43% of your gross (pre-tax) income.

The Reality Check: You do not live on gross income. You live on net income, which is what lands in your bank account after taxes and insurance. True affordability is the sweet spot where you can pay your mortgage and still save for the future, handle emergencies, and enjoy your weekends.

What are the 28/36 and 30% rules for home buying?

Financial experts use these guardrails to help buyers set a safe budget.

• The 28/36 Rule: You spend no more than 28% of your gross monthly income on home costs (mortgage, tax, insurance) and no more than 36% on total debts (housing plus car loans, student loans, and credit cards).
• The 30% Rule: Your total housing costs should not exceed 30% of your gross monthly income.

Example scenario using the 28/36 and 30% rules for home buying:

If your household earns $8,000 a month before taxes:

• 28% Rule: Your max mortgage payment is around $2,240.
• Total Debt Rule: If you pay $500 monthly for other debts, your max mortgage drops to roughly $2,380.

Use these numbers as a ceiling. Aiming lower builds a buffer for unexpected life moments.

What costs are included in a monthly mortgage payment?

Real affordability requires looking at the total PITI plus specific homeownership costs. When building your budget, account for every part of the expense:

• Principal & Interest: This pays off the loan balance and the cost of borrowing.
• Property Taxes: These vary by neighborhood and location.
• Homeowners Insurance: This protects your asset and rates can change based on weather risks.
• PMI (Private Mortgage Insurance): You generally pay this if you put down less than 20%.
• HOA Fees: Mandatory fees for condos or planned communities.

How much should I budget for home maintenance?

Homeowners should budget 1% to 2% of the home’s purchase price annually for maintenance.

When you rent, the landlord fixes the furnace. When you own, you are the landlord. This means that on a $300,000 home, you should set aside $250 to $500 a month for repairs. If this number is not in your budget, you aren't seeing the full financial picture.

How does a down payment affect monthly affordability?

The amount of cash you put down changes your monthly costs and loan options.

• The 20% Standard: This typically eliminates PMI, secures a lower interest rate, and instantly builds equity.
• Low Down Payment Options: Conventional loans allow for as little as 3% down. FHA loans allow 3.5%. VA loans often require 0% down for veterans.

While a lower down payment helps you buy a home sooner, it increases your monthly payment. Ensure your budget is strong enough to handle the higher carrying costs.

What questions should I ask before buying a home?

Run a "Life Audit" to see if a mortgage fits your personal goals.

1. Is my income stable? Lenders look at the past two years, but you need to look at the next five. If you work on commission, calculate affordability based on your lowest earning month.
2. What are my future goals? Do you plan to go back to school or start a family? Make sure your housing payment leaves room for daycare or tuition.
3. What is my "Sleep Well at Night" number? If a $2,000 payment makes you anxious, then $2,000 is too much, even if the bank approves you for $2,500.
4. How much cash will be left? Closing costs can run anywhere from 2% to 5% of the loan. Do not drain your savings to buy the house; keep an emergency fund for repairs.

How do interest rates impact home buying power?

A 1% increase in interest rates generally decreases your purchasing power by about 10%.

This means a home you could afford two years ago might cost significantly more per month today. If you find a home you love and can afford the payment now, it is a good move. You can look into refinancing later if rates drop, but focus on the monthly payment today.

Which mortgage loan type is right for me?

Different loan products solve different financial needs.

• Conventional Loans: Best for strong credit and reliable income.
• FHA Loans: Accessible for those with lower credit scores or higher debt ratios.
• VA Loans: An excellent benefit for service members with $0 down options.
• Adjustable-Rate Mortgages (ARMs): Offers a lower rate for an initial period (like 5 or 7 years). This is a strategic tool if you plan to move or refinance in a few years.

Start your home buying journey with Everwise

Buying a home is complex, but we are in this together. We encourage you to use our tools to get a baseline, but remember that a calculator doesn't know your dreams or fears.

Your next steps:

• Run the Numbers: Use the Everwise Mortgage Calculator to see what your payments could look like.
• Get a Personalized Analysis: If you are in Indiana or Michigan, contact an Everwise Mortgage Loan Officer. We can help you find a budget that empowers you to own a home and live your life.