How Much House Can I Afford? (Affordability Breakdown for First-Time Buyers)

Updated February 2026

One of the most common questions first-time buyers ask is: “How much house can I afford?” Understanding affordability early helps you set realistic expectations, choose neighborhoods confidently, and avoid surprises once you begin touring homes. It also adds structure to your buying timeline and allows lenders to give you clearer guidance during preapproval.

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Affordability Has Three Core Parts

Lenders determine affordability using three primary inputs:

1. Your Monthly Income

2. Your Monthly Debts

3. Your Down Payment + Cash to Close

Although income is often the first thing buyers think about, underwriting is ultimately a debt-based calculation.

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Income: The Starting Point

Income provides the foundation for mortgage qualification. Lenders typically verify:

✔ W-2 income
✔ self-employment income
✔ commissions and bonuses (with history)
✔ overtime (with history)
✔ child support or alimony (optional)
✔ retirement and pension income
✔ secondary verified income

The Consumer Financial Protection Bureau offers a helpful primer on income verification for mortgages:
https://www.consumerfinance.gov/owning-a-home/prepare-mortgage-application/

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Debt-to-Income Ratio (DTI): The Key Constraint

Next comes debt. Affordability is ultimately shaped by your debt-to-income ratio (DTI), which measures how much of your monthly income goes toward debt payments.

The formula is:

DTI = Total Monthly Debts ÷ Gross Monthly Income

Debts may include:

✔ student loans
✔ car loans
✔ credit cards
✔ personal loans
✔ child support or alimony

Additionally, lenders evaluate both:

• front-end DTI (housing only)

• back-end DTI (housing + debts)

Different loan programs allow different ceilings:

Because FHA and VA allow more DTI flexibility, many first-time buyers with student loans or car payments choose those programs. For a deeper comparison of loan types, see:
https://www.consumerfinance.gov/owning-a-home/loan-options/

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Down Payment + Cash to Close

Down payment affects affordability by adjusting both your loan amount and your monthly payment. However, first-time buyers no longer need large down payments to purchase a home. Many begin with:

✔ 3%–5% down on Conventional
✔ 3.5% down on FHA
✔ 0% down on VA and USDA (if eligible)

Closing costs typically add 2%–5% of the purchase price. If you need a refresher, read:
How Much Cash Do You Need to Buy a House? (internal link)

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Estimated Maximum Purchase Price Rule of Thumb

For quick planning purposes, a simple affordability rule is:

Most first-time buyers can typically afford a home priced at 3–4× their annual income

Examples:

• $70,000 income → $210,000–$280,000

• $90,000 income → $270,000–$360,000

• $110,000 income → $330,000–$440,000

However, final numbers always depend on DTI, interest rates, and down payment. NerdWallet offers a calculator for running estimates:
https://www.nerdwallet.com/mortgages/how-much-house-can-i-afford

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Interest Rates Influence Buying Power

Interest rates have a direct effect on affordability. For instance:

• a 1% rate increase can reduce buying power by roughly 8–10%

• a 1% rate decrease can expand buying power similarly

This is why preapproval scenarios are often run at multiple rate assumptions rather than a single fixed rate.

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Student Loans: Common but Manageable

Many first-time buyers carry student loan balances. Loan type and repayment plan determine how they’re counted in DTI calculations. FHA, Conventional, VA, and USDA each evaluate student loans differently. To understand these differences, Fannie Mae provides updated guidance on Conventional scoring of student loan payments:
https://singlefamily.fanniemae.com/media/19576/display
(Useful for Conventional underwriting details)

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Local Layer: Cross Plains & Middleton

In communities like Cross Plains and Middleton, first-time buyers often fall into income ranges that align naturally with FHA and Conventional purchase prices. This makes affordability approachable without the extreme compression seen in larger metros. Additionally, nearby USDA-eligible pockets may offer 0% down, increasing affordability for qualified buyers.

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What If You Don’t Know Your Budget Yet?

If you’re unsure where you land, a preapproval replaces guesswork with verified numbers. Most buyers find preapproval clarifies both what they can afford and what they’re comfortable with.

If you’re new to this step, see:
Prequalification vs Preapproval

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FAQs

Does putting more down increase affordability?
Often yes, because it reduces the loan amount and monthly payment.

Do I need to know my exact budget before touring?
Not strictly, but in competitive markets it helps you act quickly and confidently.

Can gifts or assistance boost affordability?
Yes. WHEDA, FHA, VA, USDA, and gift funds can all help first-time buyers.

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Final Thoughts

So, how much house can you afford? The answer depends on income, debt, down payment, and interest rates. However, most first-time buyers qualify within a range that’s more attainable than expected. Once you understand the inputs, you can shop confidently and choose neighborhoods that match both your goals and your budget.

If you’re planning to buy in Cross Plains, Middleton, or Dane County, I can help you model affordability scenarios based on your income, savings, and timeline.