How Much House Can You Afford? Tips to Calculate the Right Budget

Written By J. Es .

One of the biggest questions you’ll face when buying a home is, “How much house can I afford?” It’s easy to get caught up in the excitement of house hunting, but it’s crucial to establish a realistic budget before diving in. As Big Mike—Everybody’s Broker, I’m here to help you calculate the right budget for your home purchase, so you can feel confident and comfortable in your decision.

1. Start with Your Monthly Income

The first step in figuring out how much house you can afford is to look at your monthly income. This includes your salary, any additional income streams, and bonuses. You want to get a clear picture of your total monthly income because this will serve as the foundation for calculating your home-buying budget.

2. Stick to the 28/36 Rule

The 28/36 rule is a widely recommended guideline for determining how much of your income should go toward your home expenses. Here’s how it works:

  • 28% of your gross monthly income should go toward your total housing expenses (including mortgage, property taxes, and insurance). This means that if you make $5,000 a month before taxes, your total housing payment should not exceed $1,400.

  • 36% of your gross monthly income should go toward your total debt (this includes your mortgage, car loans, credit card debt, and student loans). So, if you make $5,000 a month, your total debt payments should not exceed $1,800.

The goal is to ensure that you’re not overextending yourself by taking on a mortgage that will leave you strapped for cash or unable to meet other financial obligations.

3. Calculate Your Down Payment

Your down payment plays a huge role in determining how much house you can afford. A larger down payment can lower your monthly mortgage payment, while a smaller down payment may mean higher monthly costs. Here’s a quick breakdown:

  • Conventional Loans: Typically require a 5%-20% down payment. The larger your down payment, the better terms you’ll receive.

  • FHA Loans: Require as little as 3.5% down, which makes homeownership more accessible to first-time buyers.

  • VA Loans: Offer the option of no down payment, which is a great benefit for veterans and active-duty military members.

Saving up for a solid down payment is important because it directly impacts the loan amount, monthly payment, and the need for mortgage insurance.

4. Factor in Additional Home Costs

It’s easy to focus only on the mortgage payment when budgeting for a home, but there are several other costs to consider:

  • Property Taxes: Property taxes vary depending on where you live. Make sure you estimate your property tax costs based on the home’s value and the local tax rate.

  • Homeowners Insurance: Mortgage lenders require homeowners insurance to protect against damage or theft. This will be an added monthly cost.

  • HOA Fees: If you’re buying in a community with a homeowners association (HOA), you’ll need to factor in those fees.

  • Maintenance and Repairs: Owning a home means you’ll be responsible for any repairs or upkeep. It’s a good idea to set aside about 1%-2% of your home’s value each year for maintenance costs.

5. Consider Your Debt-to-Income (DTI) Ratio

Your debt-to-income ratio (DTI) is a key factor that lenders will use to determine how much house you can afford. DTI is the percentage of your gross monthly income that goes toward paying your debts. The lower your DTI, the better your chances of qualifying for a larger mortgage.

To calculate your DTI, add up all your monthly debt payments (including the estimated mortgage payment), and divide that by your gross monthly income. If your DTI is below 36%, you’re in a strong position to take on a mortgage. However, if your DTI is higher, it may be worth paying off some debt before buying a home to ensure you’re not overleveraged.

6. Use a Mortgage Calculator

A great way to get a quick estimate of how much house you can afford is to use a mortgage calculator. These tools allow you to input your income, down payment, interest rate, and loan term to get an idea of what your monthly payments will look like.

Keep in mind that interest rates and loan terms can fluctuate, so it’s always a good idea to shop around for the best rates. Also, don’t forget to account for any additional costs, such as property taxes and insurance, when using a mortgage calculator.

7. Get Pre-Approved

Once you’ve crunched the numbers and have a good idea of how much you can afford, the next step is to get pre-approved for a mortgage. A pre-approval from a lender will give you a more accurate picture of your loan options and solidify your budget. Plus, being pre-approved shows sellers that you’re serious about buying, which can give you an edge in competitive markets.

Big Mike’s Take: Buy Smart, Not Just Big

At the end of the day, the goal is to buy a home that fits comfortably within your budget—without sacrificing your lifestyle or financial security. It’s tempting to push your budget when you find a dream home, but buying smart means sticking to a price that allows you to enjoy homeownership without stress.

As Big Mike—Everybody’s Broker, I’m here to help guide you through the home-buying process. Whether you’re just starting your search or ready to get pre-approved, I’ll help you understand your options and make a smart financial decision.

Ready to figure out how much house you can afford? Contact me today, and let’s get started on finding the perfect home within your budget!

J. Es .