How Much House Can You Afford? A Guide to Budgeting

Buying a home is one of the most significant financial decisions you'll make. Before falling in love with a property, it’s important to understand what you can realistically afford. This guide will help you navigate the budgeting process so you can shop with confidence.

1. Know Your Monthly Income

Start by identifying your gross monthly income, your earnings before taxes and deductions. A common guideline is to spend no more than 28–30% of your gross income on housing-related expenses.

2. Understand Your Debt-to-Income (DTI) Ratio

Lenders rely on your DTI ratio to determine affordability.

• Front-end DTI (housing only) should generally be under 28%.

• Back-end DTI (housing plus other debts) should be under 36–43%. Staying within these limits improves your chances of getting approved and ensures you don’t overextend financially.

3. Consider Your Down Payment

The size of your down payment significantly affects your monthly mortgage.

• A 20% down payment allows you to avoid private mortgage insurance (PMI).

• Conventional loans may allow for as little as 3–5% down, while VA and USDA loans offer 0% down for eligible buyers.

4. Factor in the Full Cost of Homeownership

Your mortgage is just one part of the equation. Include these ongoing expenses in your budget:

• Property taxes

• Homeowners insurance

• HOA fees (if applicable)

• Utilities

• Routine maintenance and repairs

A good rule of thumb is to set aside 1–2% of your home’s value per year for upkeep.

5. Use a Mortgage Calculator

Online mortgage calculators can help you estimate your monthly payments. Be sure to include the full cost, such as taxes and insurance, so you get a complete picture of what to expect.

Final Thought: Buy Within Your Comfort Zone

Just because a lender approves you for a certain amount doesn’t mean you need to spend it all. Choose a home and a monthly payment that aligns with your lifestyle and financial goals.