How Much House Can a First-Time Homebuyer Afford?

How much house you can afford as a first-time homebuyer depends on your unique financial situation.

A house payment is more than the sticker price. Principal, interest, and various other costs associated with housing all need to be factored into your final budget.

Understanding Home Buying Power For First-Time Buyers

You need to look beyond mortgage rates to determine affordability.

A housing payment is more than just your principal and interest. Property taxes, homeowners insurance, mortgage insurance requirements, and HOA dues all factor into your final price.

This full payment is often called PITI, and it is the number that should anchor your budget.

A common rule of thumb for housing affordability is the 28/36 rule, which says a household should spend no more than 28% of its gross monthly income on PITI and no more than 36% on total debt, including the mortgage.

First-time Homebuyer Affordability Calculator

You can use our housing affordability calculator to get a sense of what you might be able to afford. Keep in mind that you’ll need to consult with a financial professional to get a personalized idea of what fits your actual budget.

Key Factors Influencing Affordability

Your monthly ownership cost is a blend of mortgage principal and interest plus local costs. Comparing homes by payment, not just price, helps you avoid surprises.

That goes beyond PITI: Utility bills and maintenance also need to be factored into your budget.

Mortgage Rates And Their Impact

A mortgage rate is the interest percentage charged on your home loan. Because most first-time buyers use a 30-year fixed mortgage, rates can change affordability quickly.

Even small moves matter. A 0.50% change in rates can meaningfully change the maximum home price you can support at the same monthly payment. Running side-by-side scenarios is one of the fastest ways to find your realistic range.

Income, Debt, And Debt-To-Income Ratio

Debt-to-income ratio, or DTI, is the percentage of your gross monthly income that goes toward monthly debt payments, including the new mortgage payment. Lenders use DTI to gauge whether your payment is sustainable.

A common reference point is around 43% total DTI, though actual limits vary by loan type, lender, and borrower strength. Reducing your monthly debts can increase your buying power even if your income stays the same.

You can use our calculator below to explore different scenarios.

Down Payment Requirements And Mortgage Insurance

A down payment is the upfront cash you put toward the purchase. A larger down payment reduces the loan amount and can lower your monthly payment.

Typical minimum down payments include:

• 5% for most conventional loans, although qualifying first-time homebuyers can get down payments as low as 3%.
  
  
• 3.5% for FHA loans, if your credit score is 580 or higher.
  
  
• 0% for VA loans for eligible borrowers
  
  

If you put less than 20% down on a conventional loan, you typically pay private mortgage insurance, or PMI. PMI falls off once you reach sufficient equity.

FHA loans use mortgage insurance premiums, often called MIP, and that can last the life of the loan if you have a down payment of 10% or less.

Mortgage insurance increases your monthly payment, so it needs to be included in your affordability math.

Local Property Taxes And Insurance Costs

Property taxes and homeowners insurance vary widely by location, and they have been moving higher in many areas.

When you estimate affordability, use neighborhood-specific tax and insurance assumptions, not a national average.

Choosing The Right Loan Type And Structure

Different loan programs trade off down payment, mortgage insurance, and underwriting flexibility.

Utilizing Builder And Seller Incentives

Incentives can lower your rate, reduce closing costs, or both. Ask directly about concessions and model the payment impact before choosing a home.

Accessing Down Payment Assistance Programs

Down payment assistance can reduce the biggest barrier for many first-time buyers. The Federal Reserve’s household well-being reporting shows that many renters cite an inability to afford a down payment as a key reason they rent.

Programs vary by state and locality, and they may come as grants, forgivable loans, or deferred-payment second mortgages. The right program can reduce upfront cash without changing the home you can afford on a monthly basis. You can find links to state program on our state-level mortgage rate pages.

The Bottom Line

There is no single answer to how much house a first-time homebuyer can afford. What counts as affordable varies significantly by borrower and region. You’ll need to weigh your existing monthly debts and income against all potential costs for your home, including your down payment, principal and interest payments, property taxes, and more.

Frequently Asked Questions

What Financial Information Do I Need To Calculate Home Affordability?

Start with your gross monthly income, monthly debts, and down payment funds. Add realistic estimates for property taxes, homeowners insurance, HOA dues, and mortgage insurance.

How Do Lenders Evaluate My Debt-To-Income Ratio?

They compare total monthly debt payments, including the projected housing payment, to your gross monthly income. Many approvals cluster around a total DTI near 43%, though program limits vary.

How Does My Down Payment Affect How Much I Can Afford?

A larger down payment reduces the loan size and may lower the rate and mortgage insurance cost. That can increase the price you can afford at the same monthly payment.