How Much Home Can You Actually Afford?

The Number That Matters Most

Start with your monthly payment, not the purchase price. A $700,000 home sounds like a clean number until you add today's average 30-year fixed rate of 6.625% (6.674% APR), property taxes at 1.25% in most California counties, homeowners insurance that's doubled in the past three years, and maybe an HOA fee. That same house can cost $5,200 a month or $6,400 depending on your down payment and where you buy.

Lenders look at your debt-to-income ratio. Take your gross monthly income and multiply by 0.43. That's the ceiling most conventional loans allow for all your monthly debts combined: the new mortgage payment, your car loan, student loans, credit cards, everything. If you make $10,000 a month, you can carry up to $4,300 in total monthly obligations. The mortgage payment will eat most of that.

I run these numbers every day as a California loan officer (NMLS 2010859), and here's what I see: people qualify for more than they should spend. The bank says yes at 43% DTI. Your life says yes around 30%. That gap is where you keep breathing room for vacations, car repairs, and the things that make a house feel like a home instead of a monthly stress bill.

What Goes Into the Payment

Principal and interest are the base. On a $700,000 loan at 6.625% (6.674% APR), that's about $4,490 a month. Property tax adds another $730 if you're at 1.25% annually. Insurance might be $200 to $400 depending on fire risk and your zip code. If you put down less than 20%, add private mortgage insurance, anywhere from $150 to $600 a month depending on your credit score and loan-to-value ratio.

HOA fees show up in condos and planned communities. I've seen them as low as $150 and as high as $800 in newer developments with pools and gates. Lenders count every dollar of HOA in your debt ratio. It's not optional spending.

This is why I always build the full payment picture before we talk about offer strategy. You need to know the monthly cost, not just the price on the listing. A $650,000 house with a $400 HOA can cost more per month than a $700,000 house with no HOA. The sticker price lies.

How Lenders Size You Up

Income first. They want two years of W-2s or tax returns if you're self-employed. Consistency matters more than a single great year. A $120,000 salary is easy. A business that made $80,000 one year and $150,000 the next gets averaged, and the underwriter takes the lower figure if your income trend is falling.

Debts are simple math. Minimum payments on everything that reports to credit. If your car payment is $450, your student loan is $320, and you carry a $2,000 credit card balance with a $60 minimum, that's $830 a month before the mortgage even starts. Subtract that from your 43% DTI ceiling and you see how much room is left for housing.

Down payment changes everything. Put down 20% and you skip mortgage insurance, your monthly payment drops by hundreds, and you free up DTI room to qualify for more house. Put down 10% and you're paying for the loan insurance but still buying sooner. Put down 3.5% on an FHA loan and your upfront costs are tiny, but your monthly payment is higher and that limits how much you qualify for. I walk people through these tradeoffs every week because the right answer depends on your specific money and timeline.

Max Approval vs. Comfortable Payment

The bank will approve you at 43% DTI. That doesn't mean you should go there. I've closed loans for teachers, tech workers, and small-business owners, and the ones who stay happy are the ones who keep their housing payment under a third of their gross income. Lenders maximize their risk tolerance. You should maximize your sleep quality.

Here's a real example. A couple making $12,000 a month gross can qualify for a monthly payment around $5,160 if they have no other debts. That might get them a $900,000 purchase price with 10% down at today's average rate of 6.625% (6.674% APR). But their take-home after taxes is probably $8,500. A $5,160 payment leaves $3,340 for everything else: food, gas, utilities, retirement, car insurance, life. It's legal, but it's tight.

Drop that same couple to a $750,000 purchase price and the payment falls to around $4,400. Now they have an extra $750 a month. That's the margin that lets you fix the water heater without a credit card, take a weekend trip, or save for the next thing. I'm the loan officer who answers his own phone, and I'll tell you the same thing I tell every buyer: qualify for the max, then back off 10%. That's the home you can actually afford.

What You Can Do Right Now

Pull your credit and look at the monthly minimums. Add them up. Multiply your gross monthly income by 0.43 and subtract those debts. What's left is your mortgage-payment room. Now go backward: use any online mortgage calculator, plug in today's rate and your down payment amount, and see what purchase price fits that monthly number. You just did what I do in preapproval calls.

Pay down small balances if you're close to the edge. A $3,000 credit card with a $90 minimum payment costs you about $18,000 in buying power. Kill the card, and you free up room in your DTI to qualify for more house. Student loans in deferment still count if the lender can see a payment amount. Dispute any credit mistakes now, not the week before you write an offer.

Then call me. I'll preapprove you for the max and then we'll talk about the number that actually makes sense for your life. No pressure, no runaround, just real numbers and a path to the closing table. I'm Brett Hickman, California loan officer NMLS 2010859, and I answer my own phone.

Informational only. Not a commitment to lend. Rates subject to change. Equal Housing Opportunity.