If you've ever wondered can I afford a house, you're not alone. To figure out how much home you can afford, you need to paint a complete picture of your financial landscape. Consider your income, cash on hand for a down payment and closing costs, credit score, regular debt payments, monthly expenses and estimated monthly payment to see what you can afford.

What is an estimated monthly payment?

One of the first things you should do is calculate your expected monthly payment. Monthly payments typically consist of the following, according to Bankrate:

The principal is the amount of money you begin paying back to your lender.
The interest is a percentage of the principal.
Homeowners insurance is required by most lenders and protects your home, structures on your property, your personal belongings and liability.
Property tax is charged by your local government to pay for schools, roads and public services.

If you put less than 20% down on a home, your monthly payment will also include private mortgage insurance (PMI) to help protect the lender in case you stop making payments, says Forbes.

What is gross annual income?

Gross income is the sum of all your earnings before taxes, according to the IRS. Annual gross income is how much you make in a year, and it plays a significant role in how much house you can afford. You can typically afford higher monthly payments as your income increases. However, annual gross income is just one factor in home affordability.

What is a housing ratio?

A housing ratio describes what percentage of your income you would be spending on a mortgage payment, according to Rocket Mortgage. Lenders use this figure when they evaluate whether to approve or deny a loan request. Typically, they want a housing ratio to be 28% or lower, which means no more than 28% of your income should go toward house payments. Lenders may think your finances would become too stretched by a mortgage if your housing ratio is above 28%.

What are monthly debt payments?

Monthly debt payments, like credit cards, car loans, student loans, rent or mortgage on other properties, are any regular payments you must pay back to a lender, according to Forbes. The more your debt increases, the less house you can typically afford because of something called debt-to-income ratio.

What is a debt-to-income ratio (DTI)?

Debt-to-income ratio is the sum of your monthly payments divided by your monthly gross income, according to Consumer Financial Protection Bureau (CFPB). Almost everyone has a credit card, car loan, or student loans, so your debt ratio will almost always be a higher percentage than your housing ratio. Lenders typically want your debt-to-income ratio to be 36% or below. Paying off debts and lowering your DTI can help boost your chances of being approved for a mortgage.

What is a down payment?

A down payment is the amount of money you pay upfront for an expensive purchase, like a house, you can’t afford outright. Down payments are typically part of a loan or payment plan where the remaining money you owe is divided into more manageable, regularly scheduled payments. Typically, the more you put down, the lower your loan will be, says the CFPB.

What are the terms of a loan?

Loan terms describe all the details of your loan, according to Forbes. These details include your payment due date, payment amount and annual percentage rate (APR).

What is APR?

APR reveals how costly your loan is by combining your interest rate and related finance charges into one convenient percentage, allowing you to shop around and compare loan choices more easily.

If you’re able to find loan terms that work well for you, purchasing a house can feel more affordable. A convenient payment date could mean your bank accounts feel less stretched when a payment is due. A low monthly payment keeps more money in your pocket each month, and a low APR means your costs for borrowing money are relatively low.

What is an interest rate, and how is it calculated?

Interest is essentially a fee for borrowing money. When a lender allows you to borrow a large sum, you’re responsible for paying that amount of money back plus interest. Interest is typically displayed as a percentage called an interest rate. When it comes to mortgages and interest rates, they’re determined by a number of factors, according to Forbes. These include:

Credit scores
Past financial issues (bankruptcy, foreclosure, etc.)
Income
Employment history
Outstanding debts
Cash on hand and assets
Down payment
Loan type

What is credit score?

A credit score is a three-digit measurement to determine the likelihood a person to pay back a loan over time, according to Equifax. When it comes to getting a home loan, the higher your credit score, the better.

There are different scoring models, so yours might vary slightly from company to company, but they’ll look at your complete credit history to see if you’ve been a dependable borrower. Do you use a large percentage of your available credit line on your cards? Do you make on-time payments toward your car loan? Do you have years of proof that you’re a reliable borrower? The answers to these questions can all shape your credit score. Credit score ranges vary depending on the scoring model, but Equifax’s are a good example to look at.

Poor credit: 300-579
Fair credit: 580-669
Good credit: 670-739
Very good credit: 740-799
Excellent credit: 800-850