What monthly mortgage payment can you afford?

“How much home can I afford?” might have been one of your first questions when starting your home shopping journey. There’s a pretty simple way to find the answer. Rather than only reviewing the overall price of a house, you can calculate the estimated monthly mortgage payment to better determine what you may be able to afford.

Do you know your gross monthly income? This is how much money you make each month before taxes and other costs are taken out. If you’re trying to find which monthly mortgage payment you may be able to afford, start by multiplying your gross monthly income by 0.25. If you plan to purchase a home with a spouse or partner, combine your gross monthly incomes before starting the math. The result will equal 25% of your income. 

For instance, if you and your partner earn a total of $6,000 per month, a potentially manageable mortgage payment is about $1,500 per month ($6,000 x 0.25). Note that this does not include private mortgage insurance (PMI) and property taxes.

Next, start building your budget. Take the monthly base mortgage payment from Step 1 and list additional expenses you may need to pay as a new homeowner, such as property taxes, homeowners insurance, utility costs, ongoing potential maintenance costs, and even PMI if you put less than 20% down on the home.

For instance, imagine you currently pay $1,500 per month in rent, but that includes utilities. If you estimate utilities, property taxes, homeowners insurance, PMI, and more, your monthly mortgage payment and additional costs may be more than your current $1,500 rent payment.

Use Wells Fargo’s online home affordability calculator to understand what loan amount and monthly mortgage payment may be most comfortable for you. Take into account all the payment and budget information from Steps 1 and 2 to understand what you may be able to afford on a monthly basis. 

From the home affordability calculator results, was the monthly payment amount just right or a little too high for your budget? Carefully review the monthly payment breakdown, and feel free to edit the loan information section to understand what home price fits within your budget. 

If you decide you don’t want to lower your price range, you can consider other ways to build your buying power. For instance, the down payment amount you choose directly influences the size of the home loan (and, therefore, the monthly payment). A larger down payment will reduce the loan amount. If you choose to pay 20% or more down, PMI won’t be factored into your monthly payment.