How Much House Can You Afford?

Buying a home is an exciting step, but it’s essential to start with a clear understanding of how much house you can realistically afford. Determining how much house you can afford should first depend on your budget and what you are comfortable paying each month, NOT how much you can get approved for as those two numbers may not always sync up.

So how do you determine what you can afford? Read below and I’ll also include the link to our Redfin Home Affordability Calculator at the bottom! This way, you can shop with confidence and avoid financial stress.

Here’s a breakdown of how to calculate your home-buying budget in three simple steps:

1. Understand the 28/36 Rule

Financial experts recommend following the 28/36 rule to determine affordability:

• Housing Costs (28%): Your monthly housing expenses, including mortgage, property taxes, and homeowners insurance, should not exceed 28% of your gross monthly income.

  • For example, if your monthly income is $5,000, aim to keep your housing costs under $1,400.

• Total Debt (36%): All your debt payments—like car loans, student loans, and credit cards—plus your housing costs should not exceed 36% of your gross monthly income.

  • Using the same $5,000 example, your total debt payments shouldn’t go over $1,800.

2. Factor in Your Down Payment

The size of your down payment directly impacts your monthly mortgage payment. Here’s how:

• A larger down payment reduces how much you need to borrow, lowering monthly payments.

• Aim for at least 20% down to avoid Private Mortgage Insurance (PMI), but there are options available with as little as 3% down.

Tip: If you’re still saving for a down payment, consider reducing discretionary expenses or setting up a dedicated savings account to reach your goal faster.

3. Consider Additional Costs

Homeownership comes with extra expenses you may not have as a renter. Be sure to budget for:

• Utilities: Gas, electricity, water, and internet.

• Maintenance: Regular upkeep and unexpected repairs.

• HOA Fees: If you’re purchasing in a community with a homeowner’s association.

It’s also wise to have an emergency fund with at least 3–6 months of living expenses to cover surprises.

4. Get Pre-Approved

Before you start house hunting, speak with a lender to get pre-approved. They’ll evaluate your financial situation, credit score, and income to give you a realistic loan amount. Pre-approval not only helps you set a budget but also makes your offer more appealing to sellers. If you do not know where to start, reach out to your real estate agent who should be able to provide you with a few trusted lending partners that they’ve worked with in the past.

Why It Matters

Shopping for a home without a clear budget can lead to heartbreak if you fall in love with a house you can’t afford—or overspending on a property that strains your finances. By understanding your limits upfront, you can focus on finding a home that fits both your lifestyle and your budget. Here’s the link I promised to the calculator: https://www.redfin.com/how-much-house-can-i-afford

Need Help? Let’s Talk!

Navigating affordability can feel overwhelming, but you don’t have to do it alone. As a real estate expert, I’m here to guide you through every step of the process, from setting a budget to finding your dream home.

Ready to get started? Contact me today, and let’s make your home-buying journey smooth and stress-free!