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How Much House Can You Really Afford? Start With Your Life, Not Just the Loan Amount
One of the first questions most homebuyers ask is:
“How much house can I afford?”
It sounds like a simple question, but there are actually two different numbers you need to know:
How much you may qualify to borrow
How much you can comfortably afford each month
Those numbers are not always the same.
A lender may be able to approve you for a certain loan amount based on your income, debts, credit, and loan program. But you are the one who has to live with that payment every month.
The goal should not be to buy the most expensive house you can qualify for. The goal is to buy a home you can enjoy without feeling stressed every time the mortgage payment is due.
Step 1: Start With Your Current Monthly Budget
Before you start looking at homes, take a good look at where your money goes today.
Write down your monthly take-home income and your regular expenses, including:
Rent
Car payments
Credit cards
Student loans
Utilities
Cell phone
Internet
Insurance
Groceries
Gas
Childcare
Medical expenses
Subscriptions
Entertainment
Savings
Any other regular expenses
Now ask yourself a very important question:
How comfortable am I with my current housing payment?
If your rent is $1,800 per month and you are already struggling to make that payment comfortably, moving into a home with a $2,500 monthly payment probably will not make your financial life easier.
Homeownership also comes with expenses you may not have as a renter.
Step 2: Think About the TOTAL Housing Payment
When you hear a home's price, that does not tell you what it will cost each month.
Your total monthly housing payment could include:
Principal and interest — the payment on the money you borrowed.
Property taxes — taxes charged on the property.
Homeowners insurance — insurance protecting your home.
Mortgage insurance — this may be required depending on your loan and down payment.
HOA dues — some communities have monthly or quarterly homeowners association fees.
There can also be other costs depending on the property and loan program.
This is why two homes with the same sales price can have different monthly payments.
When comparing homes, don't ask only:
“What is the price?”
Ask:
“What will my TOTAL monthly payment be?”
Step 3: Give Yourself a Homeownership Cushion
Owning a home means you are also responsible when something breaks.
The air conditioner may need repairs. A water heater may need to be replaced. Your electric bill could be higher than it was in your apartment. You may need landscaping, pest control, appliances, or other repairs.
Your mortgage payment should leave room in your budget for those things.
If making your mortgage payment would leave you with almost nothing at the end of the month, the house may be too expensive—even if you technically qualify for the loan.
A good home payment allows you to own your home and still have a life.
Step 4: Don't Build Your Mortgage Around Someone Else's Money
This is especially important when buying a home with a boyfriend, girlfriend, family member, roommate, or another person who will not be legally responsible for the mortgage.
Maybe someone tells you:
"I'll give you $800 every month toward the house."
That sounds great.
But ask yourself:
Could I still afford this home if that $800 disappeared?
People move out. Relationships change. Jobs are lost. Family situations change. Someone who plans to help today may not be able—or willing—to help three years from now.
If that person is not legally obligated on the loan, be very careful about buying a larger or more expensive home because you are counting on their contribution.
Their payment can be a nice addition to your household budget.
It should not be the only reason you can afford your mortgage.
Step 5: Look at Your Life, Not Just Your Debt-to-Income Ratio
Mortgage lenders use something called a debt-to-income ratio, often called DTI.
It compares your monthly debts to your income and helps determine how much mortgage you may qualify for.
DTI is important, but it doesn't know everything about your life.
For example, your lender may not see that you:
Help support a parent
Pay for your child's activities
Spend a lot commuting to work
Have regular medical expenses
Pay for private school or tuition
Travel several times a year
Want to save for retirement
Have other personal expenses that don't appear on your credit report
You know your life better than a formula does.
That is why qualifying for a payment does not automatically mean you should take that payment.
Step 6: Try the Payment Before You Buy
Here is a simple test I like for buyers.
Let's say you currently pay $1,700 in rent, but you are considering a home with a total monthly payment of $2,200.
That's a $500 difference.
For the next few months, continue paying your $1,700 rent—but also put $500 into savings every month.
Now you are practicing making the future $2,200 payment.
How does it feel?
If you can save the extra $500 comfortably while still paying your other bills and enjoying your life, that's a good sign.
Even better, the money you saved can help build your emergency fund.
If you are struggling every month to put that extra $500 away, pay attention to that. Your budget may be telling you that the proposed mortgage payment is too high.
Step 7: Don't Forget What Happens After Closing
Getting the keys should not leave your bank account at zero.
After buying the home, you still need money for everyday life and unexpected expenses.
Before deciding how much cash to put toward a home, think about what you want left in savings after closing.
Having money left over can make the transition into homeownership much less stressful.
Sometimes putting every dollar you have into the purchase isn't the best financial decision.
So, How Much House Can You Afford?
Start with these questions:
What is my take-home income each month?
What are my regular monthly expenses?
How comfortable am I with my current rent?
How much more could I comfortably spend on housing?
Would I still have money to save each month?
Could I handle an unexpected home repair?
Am I depending on someone else's contribution to make the payment?
Could I still make the payment if that contribution stopped?
What will my total payment be—not just principal and interest?
How much money will I have left after closing?
Once you know those answers, a mortgage professional can help you compare them with the loan amount you actually qualify for.
The Best Mortgage Payment Is Not Always the Biggest One
Buying a home should help you build stability and wealth over time. It shouldn't make you afraid to open your bank account.
Sometimes I meet buyers who qualify for more than they expected. My job isn't to convince them to spend every dollar they qualify for.
It is to help them understand their choices.
If you qualify for a $450,000 home but feel much more comfortable with the payment on a $375,000 home, there is nothing wrong with buying the $375,000 home.
You don't get a prize for having the biggest mortgage.
The right home is the one that works for your finances and your life.
Before you start shopping, let's look at the numbers together. We can review your income, monthly obligations, available resources, estimated payment, and different price ranges so you understand what you can qualify for—and, just as importantly, what feels comfortable for you.
Ready to find your comfortable homebuying range?
Schedule a 20-minute homebuying consultation
There is no pressure to buy. The goal is simply to help you understand your numbers before you make one of the biggest financial decisions of your life.