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Bottom Line Up Front

  • The full mortgage amount you qualify for and what you can afford might not be the same thing. 
  • Your income, debt burden and lifestyle will influence the size of the mortgage you should take on.   
  • Consider factors like interest rates, loan terms and maintenance to build your home-buying budget.

Time to Read

4 minutes

December 6, 2022

Getting approved for a mortgage is exciting! With a green light on your mortgage approval, you might be inclined to shop for homes at the top of your budget. But should you? 

The truth is, qualifying for a mortgage doesn’t guarantee you can afford it. You’re the one paying the bills each month, and you’re the best judge of what fits your budget.

So, how do you know where to draw the line? Before you make a decision, look at the big picture, including the following home affordability factors to see how they can affect your overall and monthly costs.

Annual Income

Your ability to make mortgage payments depends on your income, so it’s important to take a realistic look at what your gross income was over the past year. Were there any gaps when you didn’t earn money? Did your take-home pay fluctuate? It pays to look ahead and consider any potential income changes and how this could affect your ability to pay your mortgage. Per Bankrate, your monthly mortgage payment shouldn’t exceed 36% of your gross income. 

Monthly Debt Payments

Consider the other debts or loans you may be currently paying off (auto loans, student loans, credit cards, etc.) and think about how this new loan will factor into your monthly payments. The goal is to make sure that your debt payments won’t consume too much of your income—ideally, no more than 36% of your gross income, per CNBC

Down Payment

The larger your down payment, the lower your monthly mortgage payment will be. Putting at least 20% down is helpful because it gives you a number of advantages, such as instant equity in your home and avoiding the cost of private mortgage insurance (although some lenders like Navy Federal Credit Union don’t require mortgage insurance—like VA loans, but across the board). Even if you don’t have money for a large down payment, it’s possible to qualify for a mortgage with a low down payment, or with Navy Federal’s 100% financing options,* no down payment at all. 

Your Lifestyle

Think about where your money goes now and if you plan to re-evaluate how you spend money in the future. Make sure there’s enough wiggle room in your budget to continue pursuing what’s important to you in life, whether that’s money for travel, visiting friends and family, adopting a pet or paying for children’s sports and activities.

Interest Rate

Mortgage rates go up and down based on the current federal funds rate, which is out of your control. However, there are some factors, such as your credit score, that impact the interest rate you qualify for. This ultimately makes a difference in how much you’ll pay over the life of the loan.

Terms of the Loan

The standard term length for a mortgage is 30 years. If you opt for a shorter term, such as 15 or 20 years, you may secure a lower interest rate and pay less in interest in the long run. However, your monthly payments would be higher, since you’re paying off the loan faster.

Property Taxes

Property taxes vary depending on the value of your home and its location. These can easily add up to a few hundred dollars a month.

Homeowners Insurance

Get an estimate of homeowners insurance costs for the homes you’re considering buying. Build that estimate into your budget before making a final decision.

Home Maintenance

Per State Farm, it’s a good idea to set aside between 1-4% of the home’s purchase price for annual maintenance and utilities.

Prepare Your Home-Buying Budget

Navy Federal is here to help you buy a home that fits your family and your budget. Use our Monthly Mortgage Payment Calculator to get an idea of how monthly mortgage payments can vary depending on different terms. Whether you’re a first-time or seasoned homebuyer, explore our MakingCents Home Ownership section for helpful tips and resources.

*Product features subject to approval. Available for purchase loans only. Loans may be subject to an additional funding fee, which may be financed up to the maximum loan amount.

Next Steps Next Steps

  1. Compile your financial information, including your income, monthly debt payments, savings and more. Build a budget to determine how much you have to spend on housing each month.
  2. Use Navy Federal’s mortgage calculators to determine how monthly mortgage payments can fluctuate depending on factors like the price of the property or the down payment amount, compare loan terms and explore interest rates.  
  3. Explore Navy Federal’s mortgage options to determine which home loan could work best for your financial situation. Then, reach out to apply.  


This content is intended to provide general information and shouldn't be considered legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.