How Much Should I Spend on a House?

Enjoying a leisurely dinner with friends. Hearing laughter as the neighborhood children play on a swingset out back. Snowy evenings curled up with a cup of hot chocolate. Whatever you imagine for your home, you want it to be a sanctuary for you and your family. But before you can relish in the comfort of your house, you have to find it first.

If you’re like many Americans, buying a home will be one of the biggest financial commitments you make. Finding the perfect, and perfectly affordable, home is a lot more than an asking price.

There are other costs to consider that may include closing costs, home inspections, appraisals, realtor commissions, homeowners insurance, property taxes, HOA fees, new furniture—the list seems never-ending. But before you dive into the nitty-gritty, one big question is, how much should you spend on a house?

Determining How Much to Spend on a House

There are a wide variety of loan programs available each with their own set of qualifying criteria. It is standard for most loan programs to use a borrower’s gross wage income before taxes for qualifying purposes.

The debt that is used is normally taken directly off the credit report which would not evidence all your monthly obligations such as auto insurance, utilities, etc.

What loan amount a person may qualify for under the lender calculation vs what a person is comfortable with paying can sometimes differ. It is generally recommended to do some calculating on your own using your net take home pay and estimating all of your ongoing expenses.

In addition, you may also want to get pre-approved for a mortgage which will not obligate you to any one lender, but may give you a good idea on what the maximum loan amount is that you may qualify for and the monthly estimated payment.

Compare this with what you thought you could afford using your net income calculation and remember the lender will qualify you for the maximum loan amount they are able to lend based on the program you applied for.

You choose which loan amount may work for your budget. Keep in mind that different loan programs offer different qualifying criteria, for instance on jumbo loans you may see lenders limit their qualifying ratio to 43% debt to income (DTI) or less.

For conforming loans you may see lenders offer a qualifying ratio of up to 50% DTI. Doing your research on what different loan programs offer while shopping around for rate is recommended.

If the variety of guidelines feels overwhelming, it could possibly help to take a look at a mortgage calculator.
Using this tool could allow you to play around with a few “what if” scenarios (like, what if we make a plan to save a little bit longer?) and see how much different types of mortgages could cost.

More than Just a Down Payment

When calculating the cost of home affordability, these two aspects usually come into play—how much mortgage you can afford, and how much cash you can bring to the table for closing.

Your monthly mortgage payment will include principal and interest, but that’s not the total bill. It’s also likely to include property taxes, homeowner’s insurance, and possibly private mortgage insurance (PMI). So, while the mortgage itself might be $1,625, the full amount due each month could be a bit more.

In addition, if you purchase a home with homeowner association (HOA) dues, or a home that requires additional insurance such as flood, these would be additional items that can increase the monthly mortgage payment. HOA dues are not included in your mortgage payment, but can be due to the association on a monthly basis.

One way to lower those payments is to put more money down up front. And, if you can afford a full 20% down payment, you could also get out of paying PMI. PMI is an insurance required on certain loan programs to protect the lender against default.

Use our home affordability calculator
to estimate how much house you can afford.

Some Jumbo loan programs may not have a PMI requirement even with less than 20% down. These higher loan amounts can call for 10% down with no PMI requirement, but that means shelling out cash for a larger loan. Closing day can be an expensive one.

In addition to any down payment, both buyer and seller are responsible for some portion of closing costs. For buyers, it’s typically between 2 and 5% of the cost of the home.

If you’ve already spent all your liquid cash on your down payment, it is possible to pay for closing costs through a lender credit. Lender credits may come in the form of rebate by taking a slightly higher interest rate. This would mean you pay more in interest over the life of the loan in exchange for the lender rebate to cover upfront costs.

Closing costs can also be a point of negotiation between buyer and seller, so buyers who are strapped for cash could potentially work with the sellers on a compromise.

Setting Your Expectations

Tips for Staying the Course

After you have determined how much you are comfortable spending on a house, it could be worth getting preapproved for a mortgage before you begin looking at houses.

Being pre-approved for a mortgage is considered a good indicator to sellers that you are serious about buying a home.

Doing your research upfront such as reviewing your credit score and becoming familiar with the different loan programs offered for your debt-to-income ratio qualifying range is generally considered to be a good idea, as these are typically factors that lenders review when determining mortgage terms.

Getting preapproved for a mortgage is a more in-depth process than prequalification, but is not as involved as actually borrowing a mortgage all at once.

The preapproval process typically involves filling out an application, consenting to a credit check and providing information on your income and assets.

The lenders underwriter then reviews this information and provides a preapproval letter stating that you are preapproved subject to certain conditions such as finding an eligible property.

The preapproval letter will document the type of mortgage, estimated loan amount and terms the applicant has been preapproved to borrow.

In competitive housing markets where sellers may be fielding multiple offers, having pre approval letter attached to your bid can make for a stronger offer because the seller has much less concern the deal may fall through escrow because the borrower doesn’t have sufficient credit, income or assets for the loan.

The mortgage won’t be finalized until the property appraisal, title report and any subject to conditions are received by the lender. At this point, a loan underwriter would review the remaining details against the loan guidelines and issue final approval also known as a loan commitment letter, which means the mortgage has been fully approved.

SoFi Makes the Process Less Painful

Buying a home can be as stressful as it is exciting. At SoFi, we have dedicated mortgage loan officers that can help with some of the frustrating details so you can focus on the more exciting aspects of buying a home.

You can get prequalified in two minutes and view competitive mortgage loan rate options and member discounts, no hidden fees, and as little as 10% down.

In addition, you’ll have access to financial planners and a community of other homebuyers just like you who can help every step of the way.

Get a competitive rate mortgage loan with SoFi. Applying is fast and easy—and can be done entirely online.

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Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
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Understanding the Different Types of Mortgage Loans

Homeownership can be both rewarding and a great financial decision for your future. But as anyone who has dipped their toes into the home-buying process knows, the pressure to find and secure the “right” mortgage loan can feel overwhelming, especially if you’re a first-time home buyer.

During the early stages of the home-buying process—perhaps while you’re researching neighborhoods and schools, shopping around for properties, and nailing down the details of your budget—it would serve you well to do some research into the types of mortgages available. That way, you’ll feel prepared when the time comes to put down an offer on the perfect home.

The process of applying for a mortgage loan can be complicated, and one of the first steps for a homebuyer is to decide which type of loan will best serve his or her needs.

Some mortgage applicants are first-time homebuyers, seeking to buy a home as a primary residence, while others are seasoned residential homebuyers, with experience purchasing homes primarily for investment purposes in the form of rent revenue and asset appreciation.

As you’ve likely noticed, there are quite a few mortgage loan types available to borrowers. Brace yourself, because the process definitely requires you harness your best inner comparison shopper.

You’ll need to consider the ins and outs of each option alongside your personal and financial needs. To help make the decision a bit easier, we’ve compared the advantages and disadvantages of each mortgage type below.

Fixed Rate Loans vs. Adjustable Rate Loans

Fixed rate mortgage loans are exactly what they sound like: the interest rate is fixed for the entire life of the loan, locking a borrower into a set interest rate. The length of fixed rate loans can vary, but two of the most common time frames are 15 and 30 years.

A 30-year fixed-rate loan is the most common, though you can save a lot in interest if you opt for a 15-year loan. Monthly payments on a 15-year loan will be much higher than for a 30-year mortgage, so it’s probably wise to commit only if you’re confident that it works in your budget—even in the event of a financial emergency.

Quick Tip: Check out our Mortgage Calculator to get a basic estimate of your monthly payment

One advantage of this type of loan is that the monthly payment is fixed for the entire term, which can make budgeting predictable and therefore easier. However, one downside is that if you take out a loan when interest rates are high, you’re locked into that higher rate for the entire term of the loan—unless you refinance.

If you have a high fixed rate mortgage loan in a low interest rate environment, you may be able to refinance your mortgage when interest rates drop. Of course, there is no guarantee you will qualify to refinance in the future, nor that rates will necessarily drop or stay low.

Adjustable rate mortgage (ARM) loans have an interest rate that changes throughout the life of the loan as interest rates fluctuate. ARMs generally have an initial fixed-rate period of between 5 and 10 years, during which the interest rate is fixed.

Check out local real estate
market trends to help with
your home-buying journey.

ARMs are often expressed in two numbers (like 5/1 or 2/28), although those numbers don’t follow one particular formula (they could represent years, months, number of annual payments, etc.). For example, a 5/1 ARM has five years of fixed payments and one adjustment to the interest rate in each year thereafter.

After the fixed-rate period of an ARM, the interest rate switches to variable. The variable rate is typically set based on a benchmark index rate that varies based on market conditions. During the fixed-rate period, the interest rate is usually lower than the interest rate on a traditional fixed-rate loan.

It’s easy to be drawn to the lower initial rate offered on an ARM, but it very well could end up costing more in interest than a fixed-rate loan over the lifespan of your mortgage. An ARM might work best for someone who plans to pay off their mortgage in five years or less, or is committed to refinancing prior to the ARM’s rate increase.

Rate increases in the future could be dramatic, although there are limits to the annual and life-of-loan adjustments, typically leaving adjustable-rate mortgage-holders with much higher monthly payments than if they had committed to a fixed-rate mortgage.

Deciding to go with an ARM or fixed rate mortgage may be a different process for every homebuyer, so be sure to consider your personal situation along into your research.

Conventional Loans vs. Government Insured Loans

A conventional loan is a mortgage loan originated by a bank or private lender, and is not backed or insured by the government. Banks and lenders typically look at credit scores and debt-to-income ratio, among other factors which will vary by lender, in evaluating conventional loan applications. Down payments (up-front cash) are usually required when taking out a conventional mortgage.

Conventional mortgage loans are one of the most popular types of mortgage used today. Conventional loans may have stricter requirements than government-backed home loans, which can make them slightly more difficult to qualify for than a government-backed loan. However, some borrowers may obtain conventional loans for a second home or investment property because most government-backed mortgages can only be used to purchase primary residences.

Minimum down payments for conventional mortgage loans are typically around 5%, but many borrowers choose to pay more in cash up-front in order to decrease the size of the remaining mortgage. Conventional fixed-rate mortgage loans typically require a minimum of a 620 FICO® credit score and a down payment between 5% and 20% (first-time homebuyers may be able to put down as little as 3% .

If you put less than 20% down, however, private mortgage insurance is required—but you have options. PMI can be paid monthly or can be an upfront premium that can be paid by you or the lender. Monthly PMI needs to stay in place until your loan-to-value ratio reaches 78%. (The loan-to-value ratio is the amount of the mortgage you are applying for relative to the appraised value of the home. The more money you put down, the lower your loan-to-value ratio is, and vice-versa.)

Pros: A variety of property types would qualify for a conventional mortgage. Private mortgage insurance can make it possible for borrowers to qualify for a conventional loan if they choose to put a down payment of less than 20%.

Cons: Conventional loans tend to have stricter requirements for qualification and may require a higher down payment than government loans.

For home buyers looking for more flexible lending standards, government-backed loans such as Federal Housing Administration (FHA) loans and Department of Veterans Affairs (VA) loans for veterans can be appealing options.

Federal Housing Authority (FHA) Loans

FHA loans are not directly issued from the government; certain lenders can issue FHA loans on behalf of the government and the Federal Housing Administration insures the loans. With flexible lending standards, qualifying for an FHA loan is often less difficult than qualifying for a conventional mortgage.

As such, FHA mortgages can be a great choice for people with less than stellar credit scores or a high debt-to-income ratio. With at least a 580 FICO® credit score, you might qualify with a a 3.5% down payment . For more important details, check out the FHA’s lending limits in your state. Generally, FHA mortgages come with an additional insurance charge called a “mortgage insurance premium.”

conforming loan limit

Pros: Because FHA loans are ubiquitous and have lower down payment and credit score requirements, they are one of the most accessible mortgage loans. FHA loans give potential homeowners a chance to buy without a big down payment. Additionally, FHA loans allow a non-occupant co-signer (as long as they’re a relative) to help borrowers qualify.

Cons: Historically, the requirements for FHA mortgage insurance have varied over the years. Currently, an FHA loan requires both an up-front mortgage insurance premium (which can be financed into your loan amount) and monthly mortgage insurance. The monthly mortgage insurance generally stays in place until the loan-to-value ratio reaches 78%.

VA Loans

The U.S. Department of Veteran Affairs provides loan services to members and veterans of the U.S. military and their families. If you are eligible , you could qualify for a home loan that requires no down payment or monthly mortgage insurance.

VA mortgages are designed to help veterans purchase homes with no down payment. VA loans are provided by banks and private lenders. Similar to FHA loans, the government doesn’t directly issue these loans, instead they are processed by banks or private lenders and guaranteed by the VA.

While VA loans are attractive because they typically require no down payment, they don’t have a maximum limit, depending on eligibility. Veterans, active-duty service members, and surviving spouses are eligible for VA mortgage loans.

Pros: You don’t have to put any money down or deal with monthly PMI payments, which could save borrowers thousands per year.
Cons: These loans are great to get people in homes, but are only available to veterans.

FHA 203k Rehab Loans

FHA 203k loans are home renovation loans for “fixer-upper” properties, helping homeowners finance both the purchase of a house and the cost of its rehabilitation through a single mortgage. Current homeowners can also qualify for an FHA 203k loan to finance the rehabilitation of their existing home.

Many of the rules that make an FHA loan relatively convenient for lower-income borrowers apply here, such as requiring just 3.5% down. An FHA 203k loan does not require the space to be currently livable and it has credit score requirements similar to regular FHA loans, however some lenders may require a minimum credit score of 620 to qualify.

Many types of renovations can be covered under an FHA 203k loan: structural repairs or alterations, modernization, elimination of health and safety hazards, replacing roofs and floors, and making energy conservation improvements, to name a few.

Pros: They can be used to buy a home and fund renovations on a property that wouldn’t qualify for a regular FHA loan. And they only require a 3.5% down payment.

Cons: These loans require you to qualify for the value of the property plus the costs of any planned renovations.

Conforming Loans vs. Non-Conforming Loans

Both conforming and non-conforming mortgages are types of conventional mortgages. A conforming loan meets certain guidelines established by the Federal Housing Finance Agency (FHFA) and Fannie Mae and Freddie Mac, but they are not insured by the government. The amount a buyer can borrow is limited, and that limit changes annually, based on federal guidelines.

As of 2020, the conforming loan limit is $510,400 in most of the U.S. and goes up to $765,600 in certain higher-cost areas, and is adjusted annually. Conforming loans offer better interest rates and lower fees than non-conforming loans.

Pros: Conforming loans may have lower interest rates and fees than non-conforming loans.

Cons: Limits on the amount that can be borrowed.

Non-conforming loans are loans that fall above the conforming loan limit set by the FHFA. There are several different types of non-conforming loans. The most common is a jumbo loan.

Jumbo Loans

A jumbo loan is a loan that exceeds the conforming loan limit. Due to the size of the loan, the requirements to qualify are more stringent. Most jumbo loans require a minimum FICO® credit score above 700 or 720 and a down payment of 10%, although specific requirements will generally vary by lender.

Interest rates can also be higher for jumbo loans because they are considered more risky to the lender. Other types of non-conforming loans exist for borrowers with credit scores on the lower end, or borrowers with a high debt-to-income ratio.

Those looking to fund an expensive property purchase will likely have little choice but to use a jumbo loan. If that’s you, it might require taking some time to get your credit score in good shape.

Pros: Jumbo loans can help qualified borrowers purchase expensive properties.

Cons: Qualifying for a jumbo loan may have stricter requirements or additional fees.

Each homebuyer is unique, so taking the time to fully understand the process of selecting the right mortgage for your needs is a critical first step.

Ready to do some comparison shopping? SoFi offers mortgages with competitive rates, a fast and easy application, and no hidden fees.

Ready to do some comparison shopping? SoFi offers mortgages with competitive rates, a fast and easy application, and no hidden fees.

SoFi Home Loans
Terms, conditions, and state restrictions apply. SoFi Home Loans are not available in all states. See for more information.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see


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