How Much Home Can I Afford?

While the spread of COVID-19 has slowed real estate somewhat, there is still ample opportunity to find your dream home safely and affordably. Mortgage rates are historically low during this time, and there is increased opportunity to buy in suburban areas, given less population density.

Real estate agents are now offering virtual tours that you can participate in safely from a distance. All that being said, financial security should be your number one priority when deciding to buy a home.

Learn more about how COVID-19 is impacting buying and selling a house here.

The biggest factors that affect how much home you can afford are your income, savings and credit score. While you may not be able to do much about reducing the debt you owe, you can adjust your budget so you’re saving more money every month for a down payment. Some ways to do this include:

• Reducing extra or unnecessary expenses such as eating out, subscription fees or travel.
• Putting 5% to 10% of your monthly income toward a savings or investment account.
• Paying off credit card bills early to increase your credit score.

There’s more to the cost of buying a home beyond the initial price tag. You will also need to consider both one-time costs and recurring costs.

One-time costs include the house’s down payment, which is typically at least 3% of the home’s purchase price, and closing costs, which usually add up to 2% to 5% of the total cost or more.

Ongoing expenses include your monthly mortgage payments, property taxes, insurance, HOA fees and more.

You can learn all about the fees associated with buying a home here.

Your home affordability amount is the payment amount that comfortably fits into your monthly budget. It's best to keep your mortgage payment around 25% of your overall monthly budget.

Your prequalification amount is how much of a mortgage you could be approved for. Typically, this amount reflects how much a lender would feel comfortable approving you for based on the minimum requirements.

Before applying for a mortgage, it helps to have a clear understanding of your finances and what you can afford. If you want to do a quick calculation, your monthly mortgage payment should ideally be no more than 25% of your gross income.

We can help you plan these next steps through our Home Buying Plan on the Rocket Homes® mobile app.

Ready to get approved? Maximize your buying power with a Verified Approval from Rocket Mortgage® . Get started online today!

Your credit score is one of the most important factors in qualifying for a home loan. For example, the interest rate and loan terms you receive are tied directly to your score.

See tips to help you improve your score and monitor your credit on the Rocket Homes® mobile app.

Along with your income, your monthly debt payments and expenses will play a critical role in how much you can spend on a house. The more money you have to pay off credit cards, student loans, car payments and alimony, the less you’ll have to pay for a mortgage and housing-related expenses. At the same time, you’ll also need to factor in groceries, utilities, telephone bills and other necessities to ensure you’re able to live comfortably.

While lenders vary in what score will prequalify you and at what interest rate, Rocket Mortgage® requires a minimum FICO credit score of 620 for a conventional loan and 580 for a Federal Housing Administration (FHA) loan. A higher credit score will generally help you get better mortgage terms and a lower interest rate, which will save you money over time.