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To calculate how much house you can afford, we take into account a few primary items, such as your household income, monthly debts (for example, car loan and student loan payments) and the amount of available savings for a down payment. As a home buyer, you’ll want to have a certain level of comfort in understanding your monthly mortgage payments.

While your household income and regular monthly debts may be relatively stable, unexpected expenses and unplanned spending can impact your savings.

A good affordability rule of thumb is to have three months of payments, including your housing payment and other monthly debts, in reserve. This will allow you to cover your mortgage payment in case of some unexpected event.

How does your debt-to-income ratio impact affordability?

An important metric that your bank uses to calculate the amount of money you can borrow is the DTI ratio — comparing your total monthly debts (for example, your mortgage payments including insurance and property tax payments) to your monthly pre-tax income.

Depending on your credit score, you may be qualified at a higher ratio, but generally, housing expenses shouldn’t exceed 28% of your monthly income.

For example, if your monthly mortgage payment, with taxes and insurance, is $1,260 a month and you have a monthly income of $4,500 before taxes, your DTI is 28%. (1260 / 4500 = 0.28)

You can also reverse the process to find what your housing budget should be by multiplying your income by 0.28. In the above example, that would allow a mortgage payment of $1,260 to achieve a 28% DTI. (4500 X 0.28 = 1,260)

How much house can I afford with an FHA loan?

To calculate how much house you can afford, we’ve made the assumption that with at least a 20% down payment, you might be best served with a conventional loan. However, if you are considering a smaller down payment, down to a minimum of 3.5%, you might apply for an FHA loan.

Loans backed by the FHA also have more relaxed qualifying standards — something to consider if you have a lower credit score. If you want to explore an FHA loan further, use our FHA mortgage calculator for more details.

Conventional loans can come with down payments as low as 3%, although qualifying is a bit tougher than with FHA loans.

How much house can I afford with a VA loan?

With a military connection, you may qualify for a VA loan. That’s a big deal, because mortgages backed by the Department of Veterans Affairs typically don’t require a down payment. The NerdWallet Home Affordability Calculator takes that major advantage into account when computing your personalized affordability factors.

Remember to select ‘Yes’ under ‘Loan details’ in the ‘Are you a veteran?’ box.

For more on the types of mortgage loans, see How to Choose the Best Mortgage.